What happens if I DON'T tax loss harvest?

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JD2775
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What happens if I DON'T tax loss harvest?

Post by JD2775 »

I admit I know next to nothing about TLH and am afraid I would mess it up....

I have about 90k in a Vanguard brokerage account, 95% VTSAX (Total Stock Market Index fund), 5% VBTLX (Total Bond Index fund). The bond portion was done a cpl years ago when I opened the account, all contributions since have been going to VTSAX. All dividend re-investments are turned off.

I also have about 110k in a Vanguard Roth IRA, 100% VFIAX (Vanguard 500 Index fund)

I am content on just letting it ride and paying my taxes next year as usual. It is my understanding that if I TLH now I may just end up owing more later anyway, I really don't know though.

Basically, am I really hurting myself if I just leave it alone?
jrbdmb
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Re: What happens if I DON'T tax loss harvest?

Post by jrbdmb »

"Pay me now or pay me later." You can use TLH to deduct losses off of your income now, but if you sell in the future you may have more gains to be taxed than if you had done nothing. It seems like TLH makes the most sense if you know that your tax rate now is higher than what it will be in the future.

This is most likely to be true if you are near retirement and you expect your income to drop dramatically. I'm sure others will point out scenarios where TLH also makes sense.
chassis
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

Don’t TLH. Like Roth conversions, they are a chase after the wind.
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samsoes
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Re: What happens if I DON'T tax loss harvest?

Post by samsoes »

chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
Oh, boy. Take cover! :shock:
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richard.h.gao
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Re: What happens if I DON'T tax loss harvest?

Post by richard.h.gao »

chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
It's worse than that. It's buying high and selling low.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

richard.h.gao wrote: Wed May 11, 2022 7:05 pm
chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
It's worse than that. It's buying high and selling low.
No it's buying high and selling low then buying low.
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arcticpineapplecorp.
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Re: What happens if I DON'T tax loss harvest?

Post by arcticpineapplecorp. »

chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
not sure how one can make such a sweeping generalization like this, especially about Roth conversions. James Lange wrote the first peer reviewed journal showing how Roth conversions can save tens of thousands or more in taxes.

On a personal level I converted when I was both in a low tax bracket and Obama and the Congress allowed tax on roth conversions to be spread out over two years (and skipping the normal year in which tax was owed) in 2010, sources:
https://www.journalofaccountancy.com/is ... 91743.html
https://www.walnuthilladvisorsllc.com/2 ... rom-obama/

The amount I converted was around $15,000. If I paid around $2250 in tax for the conversion (assume 15% bracket at the time), but if the account grows at 8% per year (it's all stock) it would be worth $325,867 40 years after conversion (in retirement) all tax free.

If I die in my 90s and leave that to family after 60 years of growing at 8% it'd be worth $1,518,855...all tax free.

sure they have to make withdrawals in 10 years but they won't be crying over all that tax free money.

If they inherit that in a pretax acct, the amount is greatly reduced (depending upon their bracket of course).

Like anything, i suppose it depends upon when you do the conversion and how long you live before spending the money or giving to beneficiaries. So maybe you're saying convering in your 60s isn't as great as some make it seem, but you can convert whenever you're in a lower bracket and/or opportunities arise (like dramatic drops in investment that later recovered and then some; talking 2008 to now)

Similarly with TLH while doing so lowers your basis which might increase taxes on gains later, it provides flexibility. You might donate appreciated shares. You might sell appreciated shares at a time when you are paying for skilled care so taxes may be $0 because extraordinary medical expenses are used to itemize and wipe out income. You could leave shares which get step up in basis for heirs. And so on. Oh yeah if you have large losses that don't get used up with the $3000 annual reduction in ordinary income remaining losses will offset taxes on future cap gains. What's not to like??
Last edited by arcticpineapplecorp. on Wed May 11, 2022 9:28 pm, edited 1 time in total.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

The advantage of tlh is that you can take 3k off your ordinary income which is generally higher rates than capital gains every year until you use up the losses.
aaaaaa111111
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Re: What happens if I DON'T tax loss harvest?

Post by aaaaaa111111 »

So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
Last edited by aaaaaa111111 on Wed May 11, 2022 7:25 pm, edited 2 times in total.
jebmke
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Re: What happens if I DON'T tax loss harvest?

Post by jebmke »

placeholder wrote: Wed May 11, 2022 7:17 pm The advantage of tlh is that you can take 3k off your ordinary income which is generally higher rates than capital gains every year until you use up the losses.
and you can rebalance or withdraw later without paying tax. I never paid a dime of taxes on gains I realized during the first 10 years of retirement. That got me to my pension age + SS; now I will not need to sell equity ever again -- and will never pay CG taxes on it.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

jebmke wrote: Wed May 11, 2022 7:21 pm and you can rebalance or withdraw later without paying tax. I never paid a dime of taxes on gains I realized during the first 10 years of retirement. That got me to my pension age + SS; now I will not need to sell equity ever again -- and will never pay CG taxes on it.
And if you leave to heirs they get step up in basis so they don't pay cg taxes either.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate leaving the lowest ordinary income bracket either so I will owe very little tax.
So you don't think a $3000 off the top of your taxable income would be valuable?
aaaaaa111111
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Re: What happens if I DON'T tax loss harvest?

Post by aaaaaa111111 »

placeholder wrote: Wed May 11, 2022 7:25 pm So you don't think a $3000 off the top of your taxable income would be valuable?
I suppose it would be but I'm still unclear on how it all works. Though now that I actually think about it it, the last time I made any contributions to my taxable account was Jan 2019. I presumably don't even have any losses (...yet). So maybe the question doesn't even apply it's all moot.
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Ben Ploni
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Re: What happens if I DON'T tax loss harvest?

Post by Ben Ploni »

placeholder wrote: Wed May 11, 2022 7:17 pm The advantage of tlh is that you can take 3k off your ordinary income which is generally higher rates than capital gains every year until you use up the losses.
This is the correct answer. For the vast majority of situations, the sole benefit of TLH is the $3,000 you can subtract from your annual income. Beyond that the benefits of iffy and require assumptions, but the $3,000 annual income deduction benefit works for everyone because income is taxed higher than capital gains. You can only get $3,000 of this benefit a year and you can't go back in time, so getting that $3,000 yearly is what TLH is for. If you're not TLH that much in a year (or rolling over from a previous year) then you're making a mistake. Beyond that amount is debatable, but make sure you get $3k of income deducted annually due to a TLH, from current year or prior.
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Re: What happens if I DON'T tax loss harvest?

Post by grabiner »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
If you are in the 12% tax bracket and take $3000 off your ordinary income, that is a $360 tax savings.

Then, in a future year, when you need to spend the money and sell the replacement stock for a capital gain , the gain will be $3000 larger but that extra $3000 may be taxed at 0%. So this is $360 with no cost.

In a higher tax bracket, the cost and the benefit are both greater. In the 24% bracket, you can save $720 this year by harvesting, but will pay $450 in a future tax year. Since $450 years in the future isn't as costly as $450 today, this is about the same benefit.

The biggest benefit comes from harvesting and never selling. I harvested a lot of losses in 2008-2009, and have donated many of the replacement shares to charity, so I avoided the increased capital gain.
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Re: What happens if I DON'T tax loss harvest?

Post by FoolMeOnce »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
Pretty good opportunity to tax gain harvest, resetting your cost basis higher.
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Re: What happens if I DON'T tax loss harvest?

Post by Artsdoctor »

samsoes wrote: Wed May 11, 2022 6:58 pm
chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
Oh, boy. Take cover! :shock:
LOL. Pretty accurate.

To avoid any reasonable argument, just TLH for a $3000 loss and you''ll owe less income tax this year. Then, reduce all income so your AGI in the future puts you in the 0% capital gains zone. Done.
Doc7
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Re: What happens if I DON'T tax loss harvest?

Post by Doc7 »

My taxable investment account is approx 1.5% of my income per year.

Our charitable giving is approx 11-12% of our income per year.

I can tax loss harvest continuously, any time for any amount of money (utilizing one brokerage, with completely unique indexes to all other accounts, means I can tax loss harvest for $5.00 and it is just the same TurboTax import as for $2,500).

With giving that is nearly 10x my annual brokerage purchases, it is unlikely I will ever "out gain" my giving. In other words, I don't donate $215 to church a week via check. Once a month, right now, I would donate 9 shares of ITOT (whatever has the most gains, > 1 year old) to my Fidelity DAF...and then buy 9 new shares with my giving money. The church gets a check from the DAF. The gains on those shares from their post-TLH Purchase @ lower cost basis will NEVER be taxed.


My brokerage account is more valuable to me in this manner than my Roth IRA. I maintain $0 in taxable capital gains, while also getting to deduct losses from my taxes.
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Re: What happens if I DON'T tax loss harvest?

Post by saintsfan342000 »

"Doing nothing" during a bear market is WCI's #1 thing to do during a bear market. There's absolutely nothing wrong with not TLHing.
Already impartial now...and you have a nice day.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

saintsfan342000 wrote: Wed May 11, 2022 9:06 pm "Doing nothing" during a bear market is WCI's #1 thing to do during a bear market. There's absolutely nothing wrong with not TLHing.
One should never do something that isn't a good fit but it's important to understand what the thing is before you pass on it.
chassis
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

chassis wrote: Wed May 11, 2022 9:25 pm TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?
As is designed for bogleheads you sell and immediately buy a reasonable replacement.
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

placeholder wrote: Wed May 11, 2022 9:29 pm
chassis wrote: Wed May 11, 2022 9:25 pm TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?
As is designed for bogleheads you sell and immediately buy a reasonable replacement.
@placeholder the words you wrote explain how it works. What is the "why"?
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Re: What happens if I DON'T tax loss harvest?

Post by cchrissyy »

JD2775 wrote: Wed May 11, 2022 6:40 pm Basically, am I really hurting myself if I just leave it alone?
Nope, you're fine.
TLH is not crucial to anyone's success.
I think it's good for people to understand their options lock in losses or gains, but you do not need to take any action if it doesn't strike you as useful enough to bother.
comfortable being all stock until age 40, now working towards 60-20-20 us-intl-bond
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Re: What happens if I DON'T tax loss harvest?

Post by climber2020 »

richard.h.gao wrote: Wed May 11, 2022 7:05 pm
chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
It's worse than that. It's buying high and selling low.
If done correctly, you’re never out of the market. You buy Fund B at the exact same time that you sell Fund A. The transactions occur simultaneously at 4 pm EST.

Fund A and Fund B are for all practical purposes the same thing (e.g. a total stock fund and a large cap fund)
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climber2020
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Re: What happens if I DON'T tax loss harvest?

Post by climber2020 »

chassis wrote: Wed May 11, 2022 9:32 pm
placeholder wrote: Wed May 11, 2022 9:29 pm
chassis wrote: Wed May 11, 2022 9:25 pm TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?
As is designed for bogleheads you sell and immediately buy a reasonable replacement.
@placeholder the words you wrote explain how it works. What is the "why"?
Why = to save on taxes. Knocking off $3000 each year’s income is pretty nice.

If done correctly, you are never out of the market. All you’re doing is exchanging one fund for a similar fund and getting a tax break in the process. At no point are you going to cash and sitting on the sidelines; you’re still invested in more or less the same thing.
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Re: What happens if I DON'T tax loss harvest?

Post by exodusNH »

chassis wrote: Wed May 11, 2022 9:32 pm
placeholder wrote: Wed May 11, 2022 9:29 pm
chassis wrote: Wed May 11, 2022 9:25 pm TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?
As is designed for bogleheads you sell and immediately buy a reasonable replacement.
@placeholder the words you wrote explain how it works. What is the "why"?
You are making a lateral move to be able to deduct the loss against your income.

Say I have $10,000 of VTI with $2000 of loss.

I sell the VTI and buy VOO right after. I now have $10000 of VOO and $2000 of losses that I can use to offset income, which nets me $200-$800 of tax savings. VTI and VOO move almost identically. So, why I'm selling low, I'm buying low as well. (I.e., had I bought the same amount of VOO and VTI at the same time, I'd have lost $2000 on both.) They'll move up at roughly the same rate. From an investing perspective, I have no material change.

You can also use the losses to offset other gains. E.g. if you had an old holding you want to get rid of, you can sell that at a profit and offset it with the loss.

If I sell the shares in the future, I will pay capital gains tax, but that should be lower than my ordinary income tax rate. The capital gains tax might even be at 0%. It's basically a tax arbitrage between my ordinary income and capital gains rates.
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Re: What happens if I DON'T tax loss harvest?

Post by Doctor Rhythm »

chassis wrote: Wed May 11, 2022 9:25 pm TLH is a feel good action and excuse for a bad investing decisions:

1. Bad decision to sell, for a buy and hold investor such as b'heads allege to be. What happened to the "long term"?

I suspect most Bogleheads define TLH differently than you do. For us, TLH is a swap between similar funds, not a change in allocation or strategy. It’s no different than moving your Vanguard 401k to a Schwab IRA and swapping VTSAX to SWTSX (total stock —> total stock), except you get up to $3000 in a tax deduction to change and potentially much more than that as an offset to capital gains.

2. Bad decision to sell in a loss position out of need to generate liquidity (poor cash planning). What happened to CD and bond laddering and the much-loved Emergency Fund?

Once again, that’s neither how nor why I (and likely most of this forum) do TLH.
Last edited by Doctor Rhythm on Wed May 11, 2022 10:24 pm, edited 1 time in total.
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Re: What happens if I DON'T tax loss harvest?

Post by cchrissyy »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
In your case, TLH would cause harm, since you get no benefit but saddle yourself with a future cost.
the cost i mean is someday when you are in a higher tax bracket and sell these shares, you'll have a larger amount of gains to be taxed than if you had done nothing at all.

But! if you expect to have little or no income throughout this year, you have a whole other opportunity, which is tax GAIN harvesting. That is where you sell shares that have gains on them and instantly repurchase the same thing. or it can be a different thing if you wanted to make a change for some reason. TGH locks in your gains so they get this year's 0% tax rate, and now your shares have today's cost basis not their lower old basis. this way, in a later year when you sell, you have less unrealized gains to be taxed. it's perfect for people who are presently unemployed/students/etc
comfortable being all stock until age 40, now working towards 60-20-20 us-intl-bond
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Re: What happens if I DON'T tax loss harvest?

Post by richard.h.gao »

FoolMeOnce wrote: Wed May 11, 2022 7:47 pm Pretty good opportunity to tax gain harvest, resetting your cost basis higher.
LOL
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Re: What happens if I DON'T tax loss harvest?

Post by Nate79 »

Its threads like this that just reminds me there are still a lot of posters who have absolutely no clue what TLH is all about. I would suggest those posting negatively against TLH have quite a bit of education to gain.
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Re: What happens if I DON'T tax loss harvest?

Post by spdoublebass »

arcticpineapplecorp. wrote: Wed May 11, 2022 7:15 pm

sure they have to make withdrawals in 10 years but they won't be crying over all that tax free money.

I thought trad IRAs have to be used over 10 years.
Not Roth IRAs. Right?
I'm trying to think, but nothing happens
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Re: What happens if I DON'T tax loss harvest?

Post by Leif »

In '08-'09 I rebalanced the first couple of times. But I got tried to catching falling knives. So, instead I just TLH. I thought instead of just eating lemons I'll make some lemonade. By my last TLH in '09 I had a bountiful harvest.

Since that time I had some carryover losses every year. Not all from GFC, some is since then. But I've enjoyed the $3,000 deduction each year. And sometimes I would sell something for a gain, but paid no taxes.

So of course you don't NEED to TLH. But in my case I'm very glad I did.
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Re: What happens if I DON'T tax loss harvest?

Post by grabiner »

Leif wrote: Wed May 11, 2022 11:18 pm In '08-'09 I rebalanced the first couple of times. But I got tried to catching falling knives. So, instead I just TLH. I thought instead of just eating lemons I'll make some lemonade. By my last TLH in '09 I had a bountiful harvest.
You could do both at the same time. If you have $60K in stock fund A, and rebalancing says that you should have $70K in stock, you can sell your $60K in fund A and $10K in bonds to buy $70K in stock fund B.

That;s what I did in 2008-2009. I never changed my stock allocation from 90%, and hit a rebalancing limit in October 2008 which caused me to buy more stock than I sold. (The buy was in my employer plan, as my taxable account was all stock.) By March 2009, I still had 90% of my portfolio in stock. and huge carryover losses
Leif wrote: Wed May 11, 2022 11:18 pm Since that time I had some carryover losses every year. Not all from GFC, some is since then. But I've enjoyed the $3,000 deduction each year. And sometimes I would sell something for a gain, but paid no taxes.
And this is the benefit of carryover losses. In 2013, I needed to sell stock at a market peak to make a home down payment, and I had more than enough carryover losses to offset the gain.
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Re: What happens if I DON'T tax loss harvest?

Post by White Coat Investor »

It's probably not as important as it is thought to be by many, especially if those shares will eventually be sold for larger capital gains. But to say there's no benefit just isn't true.
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

White Coat Investor wrote: Thu May 12, 2022 12:06 am It's probably not as important as it is thought to be by many, especially if those shares will eventually be sold for larger capital gains. But to say there's no benefit just isn't true.
But those shares might be sold in 0% rate or donated or inherited with step up.
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Re: What happens if I DON'T tax loss harvest?

Post by jebmke »

White Coat Investor wrote: Thu May 12, 2022 12:06 am It's probably not as important as it is thought to be by many, especially if those shares will eventually be sold for larger capital gains. But to say there's no benefit just isn't true.
I’m never selling
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Re: What happens if I DON'T tax loss harvest?

Post by Jimsad »

Even though you can only deduct $3k against income , is it correct that you can offset an unlimited amount against any gains you may have from selling real estate , like in hundreds of thousands if you have them ?
If this is correct, then it may be worth it for those anticipating gains from real estate sales
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Re: What happens if I DON'T tax loss harvest?

Post by rkhusky »

Jimsad wrote: Thu May 12, 2022 6:10 am Even though you can only deduct $3k against income , is it correct that you can offset an unlimited amount against any gains you may have from selling real estate , like in hundreds of thousands if you have them ?
If this is correct, then it may be worth it for those anticipating gains from real estate sales
If the gains shows up on Sched D, then not only can you offset those gains with carryover losses, but you must use them to offset the gains.
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Re: What happens if I DON'T tax loss harvest?

Post by Da5id »

chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
Baffling POV, blanket statement is way too broad. My marginal rate (federal plus state) is almost 40% for the next few years. I've been harvesting by selling and buying among VXUS, IXUS, and VEU this year. I have maybe 10k short term losses booked. Few thousand dollars for 5 minutes of work. Never out of the market for more than a minute. All 3 ETFs are comparable for my purposes. Seems worth it to me. And I may never have to sell at the higher basis, kids may get step up basis when they inherit.

Obviously TLH is bad for some people. If your capital gains rate is 0, for example, it is counterproductive.
gonefishing01
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Re: What happens if I DON'T tax loss harvest?

Post by gonefishing01 »

TLH is not necessary and won’t make sense for everyone, but to say it’s some kind of market timing trick and has no value for anyone is false.

What about someone diversifying away from a concentrated position in their company stock? If you need to sell with huge cap gains at some point to buy diversified index funds, having losses to offset those gains is extremely valuable. Especially at the top tax brackets. It can mean the difference between writing a check for tens of thousands to the IRS vs not.

Sure, if you plan to have a low income and pay 0% cap gains anyway, why bother. Hopefully one day I’ll be fully retired and in this camp too holding VTI forever.
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Re: What happens if I DON'T tax loss harvest?

Post by jebmke »

gonefishing01 wrote: Thu May 12, 2022 7:54 am TLH is not necessary and won’t make sense for everyone, but to say it’s some kind of market timing trick and has no value for anyone is false.
The good thing is that it generally has no cost. it is easy to do and for most people, there is probably no downside with some potential upside.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: What happens if I DON'T tax loss harvest?

Post by lazynovice »

Jimsad wrote: Thu May 12, 2022 6:10 am Even though you can only deduct $3k against income , is it correct that you can offset an unlimited amount against any gains you may have from selling real estate , like in hundreds of thousands if you have them ?
If this is correct, then it may be worth it for those anticipating gains from real estate sales
This. We have a mid six figure taxable gain on our home sale- after the exemption. We will owe 23.8% federal plus 4.5% state taxes on it this year. Every bit of my loss carryforward will be used up. When I eventually retire, I will not be in the 23.8% capital gains bracket without a massive tax law change.
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Re: What happens if I DON'T tax loss harvest?

Post by arcticpineapplecorp. »

spdoublebass wrote: Wed May 11, 2022 10:50 pm
arcticpineapplecorp. wrote: Wed May 11, 2022 7:15 pm

sure they have to make withdrawals in 10 years but they won't be crying over all that tax free money.

I thought trad IRAs have to be used over 10 years.
Not Roth IRAs. Right?
first I referenced inherited accounts. You say trad IRA but I'm talking about an inherited IRA. So just to be clear:

1. trad IRAs can be withdrawn by the original owner of the trad IRA according to life tables at the IRS.
2. Roth IRAs do not need to be drawn down at all by the original owner of the Roth IRA.

Both inherited IRAs and inherited Roth IRAs have to be spent down by beneficiaries by Dec 31st of the 10th year following the year in which the original owner of the IRA or Roth IRA died. Any money not withdrawn from inherited IRA or inherited Roth IRA by Dec 31st of the 10th year following the year in which the original owner of the IRA or Roth IRA died will be subject to a 50% tax.

make sense?
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Re: What happens if I DON'T tax loss harvest?

Post by Artsdoctor »

Jimsad wrote: Thu May 12, 2022 6:10 am Even though you can only deduct $3k against income , is it correct that you can offset an unlimited amount against any gains you may have from selling real estate , like in hundreds of thousands if you have them ?
If this is correct, then it may be worth it for those anticipating gains from real estate sales
Yes, your capital losses will be used to offset gains from real estate sales. The exclusion for primary residence ($250K for individuals and $500K for couples) is not indexed for inflation so more people will owe capital gains when they sell. For many people living in HCOL areas, the gains could be significant and of course they're declared all in one year. Having carryover losses can help mitigate that pain. Again, it's just important for each person to understand his/her own tax situation.
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Re: What happens if I DON'T tax loss harvest?

Post by PinotGris »

One thought about TLH. Bsides the 3000 set off against ordinary income, i have been setting it off against exchanging out of wrong holdings in a taxable account, such as Wellington which was generating a lot of taxable income pushing us into the higher bracket. On the other hand though it affects MAGI which inludes back all cap gains, regardless of cap loss. And then there is investment income tax if you exceed the limit.
I know this might be allowing tax wag the investment plan, but best to be aware of tax ramifications of generation more TLH than the 3000 set off.
My VTAX currently has 25000 loss and i keep looking at and not doing anything. I have enough tax loss rollover for a few years.
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Re: What happens if I DON'T tax loss harvest?

Post by PinotGris »

Artsdoctor wrote: Thu May 12, 2022 9:13 am
Jimsad wrote: Thu May 12, 2022 6:10 am Even though you can only deduct $3k against income , is it correct that you can offset an unlimited amount against any gains you may have from selling real estate , like in hundreds of thousands if you have them ?
If this is correct, then it may be worth it for those anticipating gains from real estate sales
Yes, your capital losses will be used to offset gains from real estate sales. The exclusion for primary residence ($250K for individuals and $500K for couples) is not indexed for inflation so more people will owe capital gains when they sell. For many people living in HCOL areas, the gains could be significant and of course they're declared all in one year. Having carryover losses can help mitigate that pain. Again, it's just important for each person to understand his/her own tax situation.
This is a good angle, to plan for future sale of house.Do heirs inherit cap losscas well?
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bertilak
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Re: What happens if I DON'T tax loss harvest?

Post by bertilak »

placeholder wrote: Wed May 11, 2022 7:14 pm
richard.h.gao wrote: Wed May 11, 2022 7:05 pm
chassis wrote: Wed May 11, 2022 6:53 pm Don’t TLH. Like Roth conversions, they are a chase after the wind.
It's worse than that. It's buying high and selling low.
No it's buying high and selling low then buying low.
Another way of looking at it: It is getting a tax break today at the potential cost of higher taxes in the future. Of course, if those funds are included in an inheritance or a charitable contribution, that future taxation never comes.
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Leif
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Re: What happens if I DON'T tax loss harvest?

Post by Leif »

grabiner wrote: Wed May 11, 2022 11:26 pm You could do both at the same time. If you have $60K in stock fund A, and rebalancing says that you should have $70K in stock, you can sell your $60K in fund A and $10K in bonds to buy $70K in stock fund B.

That;s what I did in 2008-2009. I never changed my stock allocation from 90%, and hit a rebalancing limit in October 2008 which caused me to buy more stock than I sold. (The buy was in my employer plan, as my taxable account was all stock.) By March 2009, I still had 90% of my portfolio in stock. and huge carryover losses
You are my hero.

My hands were too bloody to keep catching the knives. At the time we called it throwing good money after bad. So I decided to stop catching the knives and be satisfied with TLH. At least I give myself credit for not moving all to cash. I've had plenty of lemonade to drink until now.
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Re: What happens if I DON'T tax loss harvest?

Post by ruralavalon »

saintsfan342000 wrote: Wed May 11, 2022 9:06 pm "Doing nothing" during a bear market is WCI's #1 thing to do during a bear market. There's absolutely nothing wrong with not TLHing.
Nice article, thank you for the posting the link.
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