Messed up tax loss harvesting. Have I lost the benefit?

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nicktenny
Posts: 14
Joined: Wed May 13, 2015 3:39 pm

Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

I’ve never done tax loss harvesting, but thought I would take advantage.

A few days ago, I sold some VTI at a loss and exchanged it for VFIAX.

I’ve had automatic investments into VTSAX (the mutual fund equivalent of VTI for years and completely forgot that it would be bought automatically, which it was.

If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?

Thanks.
exodusNH
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by exodusNH »

nicktenny wrote: Fri Aug 05, 2022 4:12 pm I’ve never done tax loss harvesting, but thought I would take advantage.

A few days ago, I sold some VTI at a loss and exchanged it for VFIAX.

I’ve had automatic investments into VTSAX (the mutual fund equivalent of VTI for years and completely forgot that it would be bought automatically, which it was.

If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?

Thanks.
You've raised your cost basis on those shares. When you sell them in the future, you will have less of a gain and thus pay a lower tax.

You need to turn off automatic investment. There's no other way.
dbr
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by dbr »

The wash sale only disallows the loss to the extent of the value in replacement shares. The fraction in newly bought shares is probably very small compared to the total loss sale. The accounting is annoying, however.
Topic Author
nicktenny
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Joined: Wed May 13, 2015 3:39 pm

Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

Thanks for the fast response. This is a minor pain while in the accumulation phase. I mean, turning automatic investments on and off is not a huge deal, but it is inconvenient.
H-Town
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by H-Town »

nicktenny wrote: Fri Aug 05, 2022 4:12 pm I’ve never done tax loss harvesting, but thought I would take advantage.

A few days ago, I sold some VTI at a loss and exchanged it for VFIAX.

I’ve had automatic investments into VTSAX (the mutual fund equivalent of VTI for years and completely forgot that it would be bought automatically, which it was.

If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?

Thanks.
Did you do those transaction with Vanguard? When you go to Cost Basis - Realized Gain/Loss, what does the page show?

When I do TLH, I just update automatic investment to buy the replacement shares. Then set a calendar reminder to switch it back after 30 days. I also "double down" and buy more replacement shares with new money when I TLH.
Last edited by H-Town on Fri Aug 05, 2022 4:20 pm, edited 1 time in total.
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livesoft
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by livesoft »

So how much was the temporarily disallowed loss? if not large, then I wouldn't be bothered with turning off automatic investments.

And since it is likely that your broker adjusted the cost basis for you, do the newly purchased shares now have an unrealized loss? Sell 'em if they do. :)
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ruud
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by ruud »

nicktenny wrote: Fri Aug 05, 2022 4:12 pm If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?
If the VTSAX purchase was in a taxable account, then, no, you have effectively transferred the loss from your VTI position to your VTSAX position. You are no worse off as if you had not done TLH in the first place.

But if the VTSAX purchase was in an IRA, then the loss is sadly gone.
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Topic Author
nicktenny
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

dbr wrote: Fri Aug 05, 2022 4:14 pm The wash sale only disallows the loss to the extent of the value in replacement shares. The fraction in newly bought shares is probably very small compared to the total loss sale. The accounting is annoying, however.
Ok. I sold around 50K of VTI at a $5K loss. I bought 3K of VTSAX.

If you don’t mind helping, I’d love to understand how much loss is “washed out”.
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BL
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by BL »

What accounts are each of these in? taxable, IRA, Roth IRA, 401k, other?
I assume the loss was in a taxable brokerage account, so where was the other?
livesoft
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by livesoft »

nicktenny wrote: Fri Aug 05, 2022 4:23 pm
dbr wrote: Fri Aug 05, 2022 4:14 pm The wash sale only disallows the loss to the extent of the value in replacement shares. The fraction in newly bought shares is probably very small compared to the total loss sale. The accounting is annoying, however.
Ok. I sold around 50K of VTI at a $5K loss. I bought 3K of VTSAX.

If you don’t mind helping, I’d love to understand how much loss is “washed out”.
Something like 3/50 * 5 = ???K, but looking in your account online will tell you exactly the amount.
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dbr
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by dbr »

nicktenny wrote: Fri Aug 05, 2022 4:23 pm
dbr wrote: Fri Aug 05, 2022 4:14 pm The wash sale only disallows the loss to the extent of the value in replacement shares. The fraction in newly bought shares is probably very small compared to the total loss sale. The accounting is annoying, however.
Ok. I sold around 50K of VTI at a $5K loss. I bought 3K of VTSAX.

If you don’t mind helping, I’d love to understand how much loss is “washed out”.
You'll have to dig into the tax return, but probably you gave up about 3/50 of your loss.

A good author to read on this is Kaye Thomas: https://www.amazon.com/dp/B0139SU02C/re ... TF8&btkr=1

He also runs the Fairmark web pages, this section on capital gains and losses: https://fairmark.com/investment-taxation/capital-gain/

Someone can correct me if I have misunderstood or misspoken.
Topic Author
nicktenny
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Joined: Wed May 13, 2015 3:39 pm

Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

H-Town wrote: Fri Aug 05, 2022 4:18 pm
nicktenny wrote: Fri Aug 05, 2022 4:12 pm I’ve never done tax loss harvesting, but thought I would take advantage.

A few days ago, I sold some VTI at a loss and exchanged it for VFIAX.

I’ve had automatic investments into VTSAX (the mutual fund equivalent of VTI for years and completely forgot that it would be bought automatically, which it was.

If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?

Thanks.
Did you do those transaction with Vanguard? When you go to Cost Basis - Realized Gain/Loss, what does the page show?

When I do TLH, I just update automatic investment to buy the replacement shares. Then set a calendar reminder to switch it back after 30 days. I also "double down" and buy more replacement shares with new money when I TLH.
All in taxable, at Vanguard.

Just logged in…

My memory is horrible. It was actually vtsax I sold. Exchanged to similar, but different fund (vfiax)

I have a realized loss of about $4600 for my sale.

Under unrealized gains/losses, I have a small loss ($140) on the newly purchased vtsax shares. However, there’s is a note that “the shares in this lot are adjusted by a wash sale” and the total cost has been adjusted to 3138.05 instead of my usual $3000.

Does this mean Vanguard has done the accounting for me?
livesoft
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by livesoft »

nicktenny wrote: Fri Aug 05, 2022 4:43 pmDoes this mean Vanguard has done the accounting for me?
Yes. Aren't you proud of them now?
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H-Town
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by H-Town »

nicktenny wrote: Fri Aug 05, 2022 4:43 pm
H-Town wrote: Fri Aug 05, 2022 4:18 pm
nicktenny wrote: Fri Aug 05, 2022 4:12 pm I’ve never done tax loss harvesting, but thought I would take advantage.

A few days ago, I sold some VTI at a loss and exchanged it for VFIAX.

I’ve had automatic investments into VTSAX (the mutual fund equivalent of VTI for years and completely forgot that it would be bought automatically, which it was.

If I understand correctly, that creates a wash sale and I lose the ability to use that loss to cancel out gains.

So, have I simply lowered my cost basis in these shares, but gain no additional benefit? Second, how do you all avoid this happening when you have monthly or bi-monthly automatic investments?

Thanks.
Did you do those transaction with Vanguard? When you go to Cost Basis - Realized Gain/Loss, what does the page show?

When I do TLH, I just update automatic investment to buy the replacement shares. Then set a calendar reminder to switch it back after 30 days. I also "double down" and buy more replacement shares with new money when I TLH.
All in taxable, at Vanguard.

Just logged in…

My memory is horrible. It was actually vtsax I sold. Exchanged to similar, but different fund (vfiax)

I have a realized loss of about $4600 for my sale.

Under unrealized gains/losses, I have a small loss ($140) on the newly purchased vtsax shares. However, there’s is a note that “the shares in this lot are adjusted by a wash sale” and the total cost has been adjusted to 3138.05 instead of my usual $3000.

Does this mean Vanguard has done the accounting for me?
Yes, it looks like Vanguard has done the accounting for you. The amount of wash sale is $138.05 which is added to the cost basis of VTSAX. You will get the benefit of $138.05 additional basis when you sell those shares in the future. You still have the realized loss of $4600 in 2022.

When you do your tax return, you can either follow their 1099-B or just import the excel from their tax center. Pretty straightforward.
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Topic Author
nicktenny
Posts: 14
Joined: Wed May 13, 2015 3:39 pm

Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

Thank you, all!

Still learning new things. Vanguard automatic investment even allows you to skip an investment without turning it off. Very useful for this kind of thing.
Topic Author
nicktenny
Posts: 14
Joined: Wed May 13, 2015 3:39 pm

Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by nicktenny »

livesoft wrote: Fri Aug 05, 2022 4:20 pm
And since it is likely that your broker adjusted the cost basis for you, do the newly purchased shares now have an unrealized loss? Sell 'em if they do. :)
They did…and they’ve been sold. And I’ve canceled my next automatic monthly investment and will put that money to a similar, but different fund, which I can convert back to vtsax after a full 30 days from today.

Thanks again! I’ve been reading for the last 5-10 years or so with only the occasional post, but this community really is amazing.
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willthrill81
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by willthrill81 »

Going forward, why don't you set up automatic purchases of something that you wouldn't buy or sell in taxable? For instance, set up automatic purchases of an S&P 500 fund but only trade in TSM funds in taxable.
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rkhusky
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Re: Messed up tax loss harvesting. Have I lost the benefit?

Post by rkhusky »

Note that wash sales are calculated based on shares not dollars.

For example, suppose you sold 1000 shares at a $5 loss per share. And your dividend purchased 1 share, which caused a wash sale. You could still claim the loss on 999 shares. The 1 share purchased with the dividend would have its price raised by $5 to store the temporarily disallowed loss.
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