Vanguard Tax Harvesting

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JacK 098
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Vanguard Tax Harvesting

Post by JacK 098 »

Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
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Pretzel lover
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Re: Vanguard Tax Harvesting

Post by Pretzel lover »

I don't know the answer to the PAS advisor's statement but you can bank the loss to use later against gains in future years. Plus the loss can be used in the $3K annual deduction
jebmke
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Re: Vanguard Tax Harvesting

Post by jebmke »

JacK 098 wrote: Tue Jun 21, 2022 10:10 am Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
You might get better answers if you list the names of the funds instead of the ticker symbols. I know I don't keep track of symbols at all so I'd have to look all these up. Without the benefit of that info, my first inclination is that you have a lot of bond funds and perhaps combining tax harvesting with simplification can be a two-fer.

In general, I harvest losses when I have them and only take gains when it otherwise makes sense to do so -- e.g. re-balancing or shedding a holding that I have been eager to jettison. That said, the jettison candidates are usually good candidates to donate to a Donor Advised Fund if they have unrealized gains so it would be unusual for me to take gains at all.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Raspberry-503
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Re: Vanguard Tax Harvesting

Post by Raspberry-503 »

Wow that's a lot of bond funds! Why so many? I'm not familiar with all of them so yes listing their full name would help.

I own BNDX and I don't have a suitable alternative either. At least not with an ER I can live with.

It quite possible the funds you list are already alternates for each other, so if you own and want to sell all of them to TLH, it may be hard to find a good alternative.

EDIT: it might ne a good time to consider consolidations into BND+BNDX only, and harvest is just a bonus.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Sorry here the the names with the symbols-

VBTLX Total Bond Market Index Fund
VFIDX intermediate Term Investment Grade Fund
BND Total Bond Market Index Fund ETF
BNDX Total Intl Bond IndexFund ETF
BIV intermediate Term Bond ETF
BLV Long Term Bond Index Fund ETF
BSV Short Term Bond Index Fund ETF
sycamore
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Re: Vanguard Tax Harvesting

Post by sycamore »

JacK 098 wrote: Tue Jun 21, 2022 10:10 am Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
The statement may be accurate, but we can't say because we don't know exactly what's in your taxable account. If your taxable account only has bond funds, then it makes sense that potential losses would only be in bond funds.

But if your taxable account also has stock funds, it's possible those funds have losses, too. But that depends on the price of the stock fund when you bought it.

I suggest you check your Vanguard account -- there should be a way to see the gain/loss of each of your funds. If there are losses in stock funds (again, for a taxable account), there's an opportunity to Tax Loss Harvest them in addition to the bond funds.

Anyway, assuming PAS is correct about only your bond funds having harvestable losses, they may also be correct about it being difficult to find matching funds. As I understand things, PAS uses a relatively limited set of fund choices and it's possible you're using all of them. If they all have losses, you could sell them but then buying into the same funds would cause a wash sale. A wash sale is not bad, it just defers the ability to deduct the loss until later.

Going off-topic, I suggest telling the PAS advisor that having seven bond funds is overkill. Having both BND and VBTLX is rather bizarre given they're the same fund (!) just in ETF and mutual fund wrappers.

Instead I would (1) ask yourself what "average duration" and credit quality you want for your bond allocation as a whole
and (2) build a portfolio that meets those parameters using no more than three funds. It should be possible. Maybe PAS would be willing to help simplify your bond funds.
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arcticpineapplecorp.
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Re: Vanguard Tax Harvesting

Post by arcticpineapplecorp. »

JacK 098 wrote: Tue Jun 21, 2022 2:27 pm Sorry here the the names with the symbols-

VBTLX Total Bond Market Index Fund
VFIDX intermediate Term Investment Grade Fund
BND Total Bond Market Index Fund ETF
BNDX Total Intl Bond IndexFund ETF
BIV intermediate Term Bond ETF
BLV Long Term Bond Index Fund ETF
BSV Short Term Bond Index Fund ETF
how much in losses in each do you have? I.E. are you looking to TLH all of them or just some and if some, which?

Have you identified tax loss partners (to purchase replacement shares in other funds with money from the sale of the lots with losses?
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jebmke
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Re: Vanguard Tax Harvesting

Post by jebmke »

would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Topic Author
JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thanks for everyone's help. The more I read about tax harvesting the more I get confused.

Here are the loses by account:

Loss
VBTLX Total Bond Market Index Fund IRA $20K
VFIDX intermediate Term Investment Grade Fund IRA $28K
BND Total Bond Market Index Fund ETF IRA $12K
BNDX Total Intl Bond IndexFund ETF IRA $26K
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500
UpperNwGuy
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Re: Vanguard Tax Harvesting

Post by UpperNwGuy »

jebmke wrote: Tue Jun 21, 2022 3:12 pm would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
^^This is the solution. Sell them all and harvest the losses. Buy VGSH (Short-Term Treasury ETF) and VGIT (Intermediate-Term Treasury ETF) in equal proportions. Wait 31 days and then sell those and redeploy the funds to no more than two or three bond funds that you want to keep for the long haul.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thank You UpperNWGuy. I am going to speak to Vanguard.

Regards,

Jack
sycamore
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Re: Vanguard Tax Harvesting

Post by sycamore »

JacK 098 wrote: Tue Jun 21, 2022 5:54 pm Thanks for everyone's help. The more I read about tax harvesting the more I get confused.

Here are the loses by account:

Loss
VBTLX Total Bond Market Index Fund IRA $20K
VFIDX intermediate Term Investment Grade Fund IRA $28K
BND Total Bond Market Index Fund ETF IRA $12K
BNDX Total Intl Bond IndexFund ETF IRA $26K
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500
A couple of things to help explain Tax Loss Harvesting.
1. You can only harvest losses in a taxable account. So first look at your taxable bond holdings:
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500

That's $33.5K in losses you could realize if you sold them all. Selling them would be an ideal time to consolidate and/or simplify your taxable bond holdings, perhaps just one or two.


2. However :( one of the wrinkles of tax-loss harvesting is something called a wash sale.
The wash sale says that if you sell shares at a loss, and buy "replacement" share within 30 days (before or after the sale), the loss can't be claimed and is instead transferred to the replacement shares. (Note: replacement shares means either the same fund or a "substantially identical" one.)

Example: you sell 100 shares at a loss of $50/share. You buy 35 shares of a substantially identical fund 10 days later.
You can only claim the loss on 65 shares. The $50/share loss is added to the basis of the 35 replacement shares.
The loss is basically transferred to the future when you sell those 35 shares (either at a loss, or for less of a gain).

3. Unfortunately, a further wrinkle is that if replacement shares are in a tax-advantaged account (like an IRA), the loss is effectively gone forever. That's because you can't claim losses on sales in such accounts.

And because you own VBTLX, VFIDX, BND, and BNDX in an IRA, you'll have to be on the lookout for the wash sale. The simplest way to do this is
1. Stop buying any new shares of those funds in the IRA and in taxable.
2. Turn off dividend reinvestment for those funds in the IRA and in taxable.
3. Wait 30 days.
Now it's safe to sell the VBTLX, VFIDX, BND, and BNDX funds in taxable without worrying about the wash sale.

Going forward, I suggest that you don't own the same funds in the IRA that you do in taxable. This helps avoid the wash sale issue.

It appears you own BSV, BIV, and BLV only in taxable, so you could realize the losses on them right away.

Hope that helps.
Topic Author
JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thank You Sycamore for your great explanation. I can see even if I have an advisor I need to keep an eye on my accounts. I am not sure why I have so many funds but I agree with trying to simplify.

Regards,

Jack
Topic Author
JacK 098
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Joined: Tue Oct 27, 2015 6:04 pm

Re: Vanguard Tax Harvesting

Post by JacK 098 »

I do have one more question after I thought about this issue - who should i expect to come up with these tax strategies? Is it the Vanguard PAS, a Tax accountant, or do I need get myself up to speed?

Regards,

Jack
dbr
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Re: Vanguard Tax Harvesting

Post by dbr »

UpperNwGuy wrote: Tue Jun 21, 2022 5:59 pm
jebmke wrote: Tue Jun 21, 2022 3:12 pm would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
^^This is the solution. Sell them all and harvest the losses. Buy VGSH (Short-Term Treasury ETF) and VGIT (Intermediate-Term Treasury ETF) in equal proportions. Wait 31 days and then sell those and redeploy the funds to no more than two or three bond funds that you want to keep for the long haul.
Also agree. And don't forget you can even keep the entire proceeds in cash for 30 days.

I hope it was not VPAS that put you in all those funds to start with.
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AAA
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Re: Vanguard Tax Harvesting

Post by AAA »

sycamore wrote: Wed Jun 22, 2022 7:46 pm
2. However :( one of the wrinkles of tax-loss harvesting is something called a wash sale.
The wash sale says that if you sell shares at a loss, and buy "replacement" share within 30 days (before or after the sale), the loss can't be claimed and is instead transferred to the replacement shares. (Note: replacement shares means either the same fund or a "substantially identical" one.)
Is the accounting of this transfer of loss something Vanguard/Fidelity does, and is reflected in a future 1099-B, or is it something one has to keep track of oneself?
rkhusky
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Re: Vanguard Tax Harvesting

Post by rkhusky »

AAA wrote: Sat Jul 02, 2022 11:22 am Is the accounting of this transfer of loss something Vanguard/Fidelity does, and is reflected in a future 1099-B, or is it something one has to keep track of oneself?
They will make the adjustments if it is the same investment in the same account. You have to make adjustments yourself if it is across accounts.
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