Liquidation order for taxable account?

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jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Liquidation order for taxable account?

Post by jplee3 »

Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
lazynovice
Posts: 1128
Joined: Mon Apr 16, 2012 10:48 pm

Re: Liquidation order for taxable account?

Post by lazynovice »

jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
livesoft
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Re: Liquidation order for taxable account?

Post by livesoft »

Depends on your carryover losses, too. I don't pay taxes on short-term gains since they will be offset by previous losses. So it is not always shares held long-term. Furthermore, my shares held the long-term with the highest percentage unrealized gains are going to get a stepped-up basis or given to charity, so I will never realize those gains nor need to have them offset by carryover losses.
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Topic Author
jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Re: Liquidation order for taxable account?

Post by jplee3 »

lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Topic Author
jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Re: Liquidation order for taxable account?

Post by jplee3 »

livesoft wrote: Sun May 02, 2021 1:32 pm Depends on your carryover losses, too. I don't pay taxes on short-term gains since they will be offset by previous losses. So it is not always shares held long-term. Furthermore, my shares held the long-term with the highest percentage unrealized gains are going to get a stepped-up basis or given to charity, so I will never realize those gains nor need to have them offset by carryover losses.


So if I have a bunch of carryover losses, it's better to liquidate the short-term gains first to 'dry up' those losses?
Doctor Rhythm
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Re: Liquidation order for taxable account?

Post by Doctor Rhythm »

jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
dafioram
Posts: 41
Joined: Sat Jan 02, 2021 8:31 pm

Re: Liquidation order for taxable account?

Post by dafioram »

jplee3 wrote: Sun May 02, 2021 2:09 pm
livesoft wrote: Sun May 02, 2021 1:32 pm Depends on your carryover losses, too. I don't pay taxes on short-term gains since they will be offset by previous losses. So it is not always shares held long-term. Furthermore, my shares held the long-term with the highest percentage unrealized gains are going to get a stepped-up basis or given to charity, so I will never realize those gains nor need to have them offset by carryover losses.


So if I have a bunch of carryover losses, it's better to liquidate the short-term gains first to 'dry up' those losses?
You want to keep the carry over losses since they will save you $3000 applied at your tax bracket. Sell your losses then lots with no gains then ones with small gains and so on. Don't trip the wash rule.

Do you also have state income? That will make your tax savings more.
dafioram
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Re: Liquidation order for taxable account?

Post by dafioram »

Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
Right, but the opportunity cost is losing out on applying the loss on the tax return which is at ones income tax bracket. Assuming all loss are used up.
Topic Author
jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Re: Liquidation order for taxable account?

Post by jplee3 »

dafioram wrote: Sun May 02, 2021 10:33 pm
jplee3 wrote: Sun May 02, 2021 2:09 pm
livesoft wrote: Sun May 02, 2021 1:32 pm Depends on your carryover losses, too. I don't pay taxes on short-term gains since they will be offset by previous losses. So it is not always shares held long-term. Furthermore, my shares held the long-term with the highest percentage unrealized gains are going to get a stepped-up basis or given to charity, so I will never realize those gains nor need to have them offset by carryover losses.


So if I have a bunch of carryover losses, it's better to liquidate the short-term gains first to 'dry up' those losses?
You want to keep the carry over losses since they will save you $3000 applied at your tax bracket. Sell your losses then lots with no gains then ones with small gains and so on. Don't trip the wash rule.

Do you also have state income? That will make your tax savings more.
Ah ok. So in this case, I have a few short term gains that are relatively small (anywhere from $100-$4000) as well as a small short term loss ($11~ lol). As far as long term gains, I do have some long are between $3000-4000. I'm assuming the general order of liquidation then should roughly be: 1) short term losses 2) long term losses 3) smallest long term gains 4) smallest short term gains ?

BTW: what numbers are we talking about when we say "small gains" - Like under $50? Under $100? Under $1000?
Last edited by jplee3 on Sun May 02, 2021 10:56 pm, edited 2 times in total.
Topic Author
jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Re: Liquidation order for taxable account?

Post by jplee3 »

dafioram wrote: Sun May 02, 2021 10:35 pm
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
Right, but the opportunity cost is losing out on applying the loss on the tax return which is at ones income tax bracket. Assuming all loss are used up.
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
So my capital gains tax rate would be 15%

I suppose if I were in the 0% bracket, it would be fine to sell off whatever I want to and still not impact the carryover loss I've incurred (I think around $60k from March 2020 - TLH FTW). If I get laid off I could do that LOL. The problem is that the intention behind this would be to make funds available for a home down payment, so not having a job wouldn't help with that...unless of course I were to pay all cash.
dafioram
Posts: 41
Joined: Sat Jan 02, 2021 8:31 pm

Re: Liquidation order for taxable account?

Post by dafioram »

jplee3 wrote: Sun May 02, 2021 10:48 pm
dafioram wrote: Sun May 02, 2021 10:33 pm
jplee3 wrote: Sun May 02, 2021 2:09 pm
livesoft wrote: Sun May 02, 2021 1:32 pm Depends on your carryover losses, too. I don't pay taxes on short-term gains since they will be offset by previous losses. So it is not always shares held long-term. Furthermore, my shares held the long-term with the highest percentage unrealized gains are going to get a stepped-up basis or given to charity, so I will never realize those gains nor need to have them offset by carryover losses.


So if I have a bunch of carryover losses, it's better to liquidate the short-term gains first to 'dry up' those losses?
You want to keep the carry over losses since they will save you $3000 applied at your tax bracket. Sell your losses then lots with no gains then ones with small gains and so on. Don't trip the wash rule.

Do you also have state income? That will make your tax savings more.
Ah ok. So in this case, I have a few short term gains that are relatively small (anywhere from $100-$4000) as well as a small short term loss ($11~ lol). As far as long term gains, I do have some long are between $3000-4000. I'm assuming the general order of liquidation then should roughly be: 1) short term losses 2) long term losses 3) smallest long term gains 4) smallest short term gains ?

BTW: what numbers are we talking about when we say "small gains" - Like under $50? Under $100? Under $1000?
I'm surprised there is no wiki on most efficient security selling in taxable. Here the TLH wiki if you want to review https://www.bogleheads.org/wiki/Tax_loss_harvesting.

You sell losses first because that returns the capital and adds to your losses. The more losses the more years you get that 3k deduction. Then sell little or no gains since that does nothing to your losses and gives you back your capital. Then sell small dollar gains since that cuts into your losses. You want efficiency here so you want the most dollars back with the least reduction in your capital loss carryover. If your $1000 dollar gain returns you 100k then thats pretty efficient. But if its $1000 gain on $100 initial investment then not so much.

Since you have 60k thats about 20 years of getting 3k deduction so you can probably use some of that cushion now to realize some gains to buy your house since it sounds like you will still have some loss left over. And there is always more years to generate losses later.
dafioram
Posts: 41
Joined: Sat Jan 02, 2021 8:31 pm

Re: Liquidation order for taxable account?

Post by dafioram »

jplee3 wrote: Sun May 02, 2021 10:48 pm
dafioram wrote: Sun May 02, 2021 10:35 pm
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm

Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
Right, but the opportunity cost is losing out on applying the loss on the tax return which is at ones income tax bracket. Assuming all loss are used up.
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm
jplee3 wrote: Sun May 02, 2021 12:46 pm Hi guys,

Is there a certain 'order' to follow when seeking to liquidate funds out of taxable accounts?

I have Fidelity and I know you can see the oldest to newest lots of shares that were purchased. I seem to recall there being a section on how to order things when selling too. I would assume that you nearly always want to sell the nearest acquired long term purchase if that's even possible.
Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
So my capital gains tax rate would be 15%

I suppose if I were in the 0% bracket, it would be fine to sell off whatever I want to and still not impact the carryover loss I've incurred (I think around $60k from March 2020 - TLH FTW). If I get laid off I could do that LOL. The problem is that the intention behind this would be to make funds available for a home down payment, so not having a job wouldn't help with that...unless of course I were to pay all cash.
You cannot tax gain harvest properly when your are in the 0% bracket because you must use up your capital loss carryover first. So TLH and TGH strategies work against themselves. The capital loss carryover is also a shield that allows you to realize gains when you are in a high tax bracket and want cash. Using it up when your are in a low tax bracket year isn't optimal. But sometimes like a Roth conversion could fit the bill
Topic Author
jplee3
Posts: 185
Joined: Thu Nov 13, 2014 9:15 pm

Re: Liquidation order for taxable account?

Post by jplee3 »

dafioram wrote: Sun May 02, 2021 11:44 pm
jplee3 wrote: Sun May 02, 2021 10:48 pm
dafioram wrote: Sun May 02, 2021 10:35 pm
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm


In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
Right, but the opportunity cost is losing out on applying the loss on the tax return which is at ones income tax bracket. Assuming all loss are used up.
Doctor Rhythm wrote: Sun May 02, 2021 9:57 pm
jplee3 wrote: Sun May 02, 2021 2:07 pm
lazynovice wrote: Sun May 02, 2021 12:54 pm

Depends on your tax bracket. Are you in the 0% capital gains bracket? If so the answer is different than if you are in the 20%. Do you have the cost basis method set up as specific ID? You would sell in the order that minimizes tax liability.

In this case I'd be in the 22-23% I believe.
Capital gains tax rates: 0, 15%, or 20%. The brackets depend on your filing status.

https://www.kiplinger.com/taxes/capital ... 0-and-2021
So my capital gains tax rate would be 15%

I suppose if I were in the 0% bracket, it would be fine to sell off whatever I want to and still not impact the carryover loss I've incurred (I think around $60k from March 2020 - TLH FTW). If I get laid off I could do that LOL. The problem is that the intention behind this would be to make funds available for a home down payment, so not having a job wouldn't help with that...unless of course I were to pay all cash.
You cannot tax gain harvest properly when your are in the 0% bracket because you must use up your capital loss carryover first. So TLH and TGH strategies work against themselves. The capital loss carryover is also a shield that allows you to realize gains when you are in a high tax bracket and want cash. Using it up when your are in a low tax bracket year isn't optimal. But sometimes like a Roth conversion could fit the bill
Oh good to know. So if I'm considering early retirement, it's probably not a bad idea to try to use up the loss carryover while still employed I presume.
penumbra
Posts: 319
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Re: Liquidation order for taxable account?

Post by penumbra »

Something not mentioned above is that you never want to let short term losses become long term. Realize them before that happens. You can figure out why pretty easily.
Topic Author
jplee3
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Re: Liquidation order for taxable account?

Post by jplee3 »

penumbra wrote: Mon May 03, 2021 12:15 am Something not mentioned above is that you never want to let short term losses become long term. Realize them before that happens. You can figure out why pretty easily.
Yea, I had a good opportunity to harvest short term losses last month but sat on it and missed out. It was nothing huge but it certainly wouldn't have hurt. Of course, these are primarily index funds we're talking about here so over the long term the gains have been positive for those existing positions I hold.
dafioram
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Re: Liquidation order for taxable account?

Post by dafioram »

penumbra wrote: Mon May 03, 2021 12:15 am Something not mentioned above is that you never want to let short term losses become long term. Realize them before that happens. You can figure out why pretty easily.
A long term loss is the same as a short term loss.
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Re: Liquidation order for taxable account?

Post by grabiner »

dafioram wrote: Mon May 03, 2021 6:41 am
penumbra wrote: Mon May 03, 2021 12:15 am Something not mentioned above is that you never want to let short term losses become long term. Realize them before that happens. You can figure out why pretty easily.
A long term loss is the same as a short term loss.
Short-term losses have the minor advantage that they offset short-term gains first. This only makes a difference if you have a year in which you have both short-term and long-term gains, and your total losses (including any carryovers) are less than your gains.

If all your gains are long-term, you don't care about the difference between short-term and long-term losses. And if your losses exceed your gains, there is no difference in the current year, although the distribution of gain and loss types may affect whether you carry short-term or long-term losses over to the next year.
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