Short Term Capital Loss Available

[happysteward]

Hi Boglehead friends,

I have a short term capital loss on a lot of VBTLX (Vanguard Total Bond Market Index Admiral) which will become long term in a few weeks.

I would like to Tax Loss Harvest this by swapping into VBILX (Vanguard Intermediate Term Bond Index Admiral).

Is there an advantage/disadvantage to waiting for this loss to become long term?

[jebmke]

no, no advantage

[PuckMan93]

From a tax perspective, a short-term loss is preferred because they first offset short-term capital gains before long-term capital gains. May work out to no benefit depending on your situation, but in general they are better.

[happysteward]

Will a long term capital loss offset a short term capital gain?

[sycamore]

Will a long term capital loss offset a short term capital gain?

Yes but the best way to find out is to fill in your tax forms. Basically there are IRS rules on how to net losses against gains based on their holding period, and then if you have any amounts left over you net them out again.

Here's are some articles that may help
https://obliviousinvestor.com/capital-g ... long-term/
https://www.investopedia.com/articles/i ... nd-tax.asp

[livesoft]

There is a disadvantage to wait. You might have ST gains and LT gains and if the loss was ST, then you would offset realized ST gains first. But if the loss was LT, then you would offset LT gains first. You want to opportunity to offset ST gains first since they are taxed at a higher rate. You may say, "But I do not intend to have any ST gains." In reality, having a stable of ST losses from which to offset ST gains means that decisions on whether to sell for ST gains vs LT gains are not made murky by the tax consequences which could lead to a behavioral mistake.

[SpideyIndexer]

Where in the prospectus does it explicitly state that interest (or tax-exempt dividends) is accrued daily? I can't seem to find it.

[sycamore]

Where in the prospectus does it explicitly state that interest (or tax-exempt dividends) is accrued daily? I can't seem to find it.

I posted some instructions for searching the prospectus for that. See viewtopic.php?p=6412380#p6412380

[Statistical]

Will a long term capital loss offset a short term capital gain?

Yes but it will offset long term gains first. Short term losses offset short term gains first. Since short term gains are taxed higher a long term loss will never be better at best it is equal.

Example:
$10k long term gains
$10k short term gains

Scenario A: tax loss of $15k short term loss
Net result:
$5k long term gains
$0 in short term gains

Scenario B: tax loss of $15k long term loss
Net result:
$0 long term gains
$5k in short term gains

In both scenarios your $15k loss netting your $20k in gains down to $5k. However since LTCG are taxed lower (and for some users at zero) Scenario A results in more tax savings.

I am not saying you CAN'T TLH a long term loss but it can never be better than a short term loss and there is certainly no reason to ever wait for it to become a long term loss before harvesting it.

Capital Losses are always applied in this order
1) like to like (long against long, short again short)
2) any remaining capital gains for the year
3) up to $3k against regular income
4) roll the rest forward till next year

[happysteward]

Will a long term capital loss offset a short term capital gain?

Yes but it will offset long term gains first. Short term losses offset short term gains first. Since short term gains are taxed higher a long term loss will never be better at best it is equal.

Example:
$10k long term gains
$10k short term gains

Scenario A: tax loss of $15k short term loss
Net result:
$5k long term gains
$0 in short term gains

Scenario B: tax loss of $15k long term loss
Net result:
$0 long term gains
$5k in short term gains

In both scenarios your $15k loss netting your $20k in gains down to $5k. However since LTCG are taxed lower (and for some users at zero) Scenario A results in more tax savings.

I am not saying you CAN'T TLH a long term loss but it can never be better than a short term loss and there is certainly no reason to ever wait for it to become a long term loss before harvesting it.

Capital Losses are always applied in this order
1) like to like (long against long, short again short)
2) any remaining capital gains for the year
3) up to $3k against regular income
4) roll the rest forward till next year

Thanks statistical!