TLH & "escaping" dividend

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Topic Author
H-Town
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TLH & "escaping" dividend

Post by H-Town »

Bogleheads,

I'm contemplating the following TLH transaction, and wanted to get your opinions.

TLH: exchange VFIAX (S&P 500) to VLCAX (Large Cap index) for roughly 2.5k capital loss.

VLCAX has 9/21, 9/22, and 9/23 as record date, ex-dividend date, and payable date.
VFIAX has 9/26, 9/27, and 9/28 as record date, ex-dividend date, and payable date.

If I were to do TLH tomorrow 9/23, I would be able to:
1) harvest the capital loss ~2.5k give or take
2) escape the Q3 dividends from both VFIAX and VLCAX. This would save additional tax as well.

Am I overlooking anything? Or it's just good timing when I can both TLH and escaping dividends at the same time?
Time is the ultimate currency.
livesoft
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Re: TLH & "escaping" dividend

Post by livesoft »

Yes, that will work. I have done something similar in the past.
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plutoblackhole
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Re: TLH & "escaping" dividend

Post by plutoblackhole »

I had a similar question here viewtopic.php?t=386509 except with VTI and SCHB.

To be clear, is it the Ex-dividend date that's important here? If so then couldn't H-Town also TLH today?
Topic Author
H-Town
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Re: TLH & "escaping" dividend

Post by H-Town »

Thanks livesoft!

If I'm buying shares on ex-dividends date, I won't receive the dividends. After today's trading day, the NAV of VLCAX will drop to the extent of the dividend paid. I guess I could do TLH today like plutoblackhole said. If I want to play it safe, I would trade on 9/23 when the dust settles.
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plutoblackhole
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Re: TLH & "escaping" dividend

Post by plutoblackhole »

I believe I found the answer from an old livesoft post in 2015: viewtopic.php?p=2727301#p2727301

The Ex-dividend date does seem to be the one that matters.
livesoft
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Re: TLH & "escaping" dividend

Post by livesoft »

plutoblackhole wrote: Thu Sep 22, 2022 12:16 pm I believe I found the answer from an old livesoft post in 2015: viewtopic.php?p=2727301#p2727301

The Ex-dividend date does seem to be the one that matters.
Vanguard used to never post for mutual funds the ex-dividend date which has led to confusion. For mutual funds, there is this old post from 2010:
viewtopic.php?t=65205
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grabiner
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Re: TLH & "escaping" dividend

Post by grabiner »

Escaping the dividend isn't that much of a benefit, compared to receiving the dividend on the fund that you sell. The share price will drop by the amount of the dividend, so if you receive a dividend and then sell, you will owe tax on the dividend but increase your capital loss.

There can be a benefit for buying a fund after it pays a dividend, although this is a relatively small benefit for a fund like the ones you are considering. If the annual dividend is 2%, buying $10K of stock before a quarterly dividend gives you a $50 dividend, and thus costs you about $8 in tax if the dividend is mostly qualified.
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H-Town
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Re: TLH & "escaping" dividend

Post by H-Town »

grabiner wrote: Sat Sep 24, 2022 4:48 pm Escaping the dividend isn't that much of a benefit, compared to receiving the dividend on the fund that you sell. The share price will drop by the amount of the dividend, so if you receive a dividend and then sell, you will owe tax on the dividend but increase your capital loss.

There can be a benefit for buying a fund after it pays a dividend, although this is a relatively small benefit for a fund like the ones you are considering. If the annual dividend is 2%, buying $10K of stock before a quarterly dividend gives you a $50 dividend, and thus costs you about $8 in tax if the dividend is mostly qualified.
That's right. It's not much of a benefit. It's just a good timing when that happened.
Time is the ultimate currency.
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