TLH for absolute dummies [Tax Loss Harvesting]

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Thu Aug 27, 2015 1:10 pm

Minsc wrote:Say I tax loss harvested VTIAX and bought VFWAX in my taxable account. I also have VTIAX in my Roth, which is going to get a dividend in September. I should turn off the reinvestment option on the VTIAX in my Roth? Is it ok to have that dividend from VTIAX go to another of my funds say Total US?
If you TLH today and the dividend comes at the end of September, there is no issue. But if the dividend happens within 30 days, you should either send the dividend to money market or another fund such as total US stock. But be sure you don't TLH total stock….

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Minsc » Thu Aug 27, 2015 2:34 pm

Ok, thank you guys! :sharebeer

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Thu Aug 27, 2015 3:03 pm

Well, for what it's worth, I pulled the trigger. Wish I could have been confident enough to do it two days ago, but whatever. Looks like I'll realize somewhere in the neighborhood of -$8000.

If the market drops again between now and 31 days from now, I can TLH harvest again, right? So long as I find some third vehicle into which to put the money?

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Thu Aug 27, 2015 3:15 pm

Roothy wrote:Well, for what it's worth, I pulled the trigger. Wish I could have been confident enough to do it two days ago, but whatever. Looks like I'll realize somewhere in the neighborhood of -$8000.

If the market drops again between now and 31 days from now, I can TLH harvest again, right? So long as I find some third vehicle into which to put the money?
Don't make your head explode. If it drops again, just wait for 31 days and go back to your original fund.

But think about what you just did: You bought low, so less chance of tax-loss harvesting in the immediate future.

Next question: Did you rebalance at all any time this week? If one does not buy in the face of gloom and doom, then when should one buy?

Also note that the stock market has fully recovered from what happened on Monday. It won't show up in graphs and charts that are longer than about 2 weeks. Folks will say, "Oh, look! Nothing happened!", but folks who did something will be thinking: "I made 4% to 5% which will help the next time I don't time things so well." It also won't show up in "studies" that write about comparing rebalancing every month or every quarter or every year.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Thu Aug 27, 2015 3:18 pm

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Last edited by retiredjg on Thu Aug 27, 2015 4:58 pm, edited 1 time in total.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Thu Aug 27, 2015 3:27 pm

livesoft wrote:
Roothy wrote:Well, for what it's worth, I pulled the trigger. Wish I could have been confident enough to do it two days ago, but whatever. Looks like I'll realize somewhere in the neighborhood of -$8000.

If the market drops again between now and 31 days from now, I can TLH harvest again, right? So long as I find some third vehicle into which to put the money?
Don't make your head explode. If it drops again, just wait for 31 days and go back to your original fund.

But think about what you just did: You bought low, so less chance of tax-loss harvesting in the immediate future.

Next question: Did you rebalance at all any time this week? If one does not buy in the face of gloom and doom, then when should one buy?

Also note that the stock market has fully recovered from what happened on Monday. It won't show up in graphs and charts that are longer than about 2 weeks. Folks will say, "Oh, look! Nothing happened!", but folks who did something will be thinking: "I made 4% to 5% which will help the next time I don't time things so well." It also won't show up in "studies" that write about comparing rebalancing every month or every quarter or every year.
I'm glad I did it--mostly just so I stop thinking about it as much. And the extra $1000 a year off my income taxes for the next 2-3 years will be nice.

I did not rebalance, because I wasn't really even close to any rebalancing triggers. I'm very heavy equity: 90% to 10% bonds/cash (but I count SS as a bond so the actual ratio is less heavy on the equities). My equities are currently 95% domestic/5% international, and my goal is to get international up to at least 20%... but I'm doing that rebalancing just by buying as I accumulate cash/do my regular investments.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by saladdin » Thu Aug 27, 2015 4:20 pm

Thanks everyone for this.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Thu Aug 27, 2015 4:37 pm

Roothy wrote:I'm glad I did it--mostly just so I stop thinking about it as much. And the extra $1000 a year off my income taxes for the next 2-3 years will be nice.
Another nice thing about tax-loss harvesting is that with these losses "in the bank", then one can minimize the anxiety of realizing capital gains in a rebalancing move. This is more important than many people think. It is not uncommon to see someone say, "Oh, I wanted to rebalance, but the tax consequences stopped me from doing so." Now with the loss on the books and available to offset gains, that kind of thinking is at least diminished if not completely dispensed with. In one sense it is like turning your taxable account into a Roth IRA. Ain't that wonderful!

Actually, I like that last thought quite a lot. I should copyright the following phrase:
Tax-loss harvesting turns your taxable account into a Roth IRA.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Thu Aug 27, 2015 4:51 pm

livesoft wrote:
Roothy wrote:I'm glad I did it--mostly just so I stop thinking about it as much. And the extra $1000 a year off my income taxes for the next 2-3 years will be nice.
Another nice thing about tax-loss harvesting is that with these losses "in the bank", then one can minimize the anxiety of realizing capital gains in a rebalancing move. This is more important than many people think. It is not uncommon to see someone say, "Oh, I wanted to rebalance, but the tax consequences stopped me from doing so." Now with the loss on the books and available to offset gains, that kind of thinking is at least diminished if not completely dispensed with. In one sense it is like turning your taxable account into a Roth IRA. Ain't that wonderful!
Good point. For a slightly different example, I have bond funds in my taxable account, including international bond funds. I have learned this is stupid. I'd like to sell them (and increase, accordingly, at least for the domestic bond funds) in my tax-advantaged accounts... but I have been loathe to realize gains. Now I don't have to worry about that.

Just to clarify, though: you only get to offset capital gains in the year in which you realize the losses, right? The carry over only applies to future uses to offset ordinary income, right?

EDIT: I just did some research, and HOLY CRAP, your carryovers can be used against capital gains in the future, too! So even after you are retired, if you no longer have ordinary income, you can use the carryovers to offset long term capital gains! I can't believe the IRS lets people do this. Shhhhhhhh.....

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Thu Aug 27, 2015 5:57 pm

I wish to congratulate you for doing your own research and getting the answer to that last question you posed.

And you can use carryovers to offset short-term gains, too. Even in retirement.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by FactualFran » Thu Aug 27, 2015 6:15 pm

The six steps taking up about 75 lines in the opening post are beyond the abilities of some of us absolute dummies.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by zzcooper123 » Thu Aug 27, 2015 6:48 pm

:twisted: Now if we can just get the IRS to offset dividends with capital losses...

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Thu Aug 27, 2015 6:51 pm

zzcooper123 wrote::twisted: Now if we can just get the IRS to offset dividends with capital losses...
The IRS already obliges you to the tune of $3,000 a year.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Thu Aug 27, 2015 6:57 pm

FactualFran wrote:The six steps taking up about 75 lines in the opening post are beyond the abilities of some of us absolute dummies.
I hear you FactualFran. I started it with six steps with one sentence in each step. And then I kept getting more and more information and "but sees" and ... well, all I can say is, this list is a lot more usable than what is currently in the wiki, which doesn't give exact steps at all.

I think you'd be well within reason to just not TLH. But I've decided it really *is* worth the effort. In fact, I think the reason it is so hard is because it is, to be blunt, a tax loophole--which means you are threading a needle and trying to avoid lots of pits and traps. We are collectively abusing the spirit of the tax code while staying true to its letter--that means by its nature it's going to be complicated. People who say, "It's so easy! Two clicks of the mouse and I'm done!" are basically [(removed) --admin LadyGeek]. But it's doable--and in my opinion worth doing.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by jbreittling » Thu Aug 27, 2015 7:37 pm

livesoft wrote:I wish to congratulate you for doing your own research and getting the answer to that last question you posed.

And you can use carryovers to offset short-term gains, too. Even in retirement.
+1...well done!

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 9:34 am

To any experienced folk who are reading this: could you give an answer to the following two questions? I'd like to forward this to the "suggestions" page of the wiki. Thanks for all your help; this has been very educational (and profitable).
Roothy wrote:
Step 1:
In your account settings, switch from "automatically reinvest" dividends and capital gains, to depositing them into a Money Market fund at the same company. You can reinvest them 61 days after you tax loss harvest. Really, you should not do your first tax loss harvest until at least 30 days have passed since your last purchase into this account--that includes automatic payments, or reinvested dividends and capital gains. But for simplicity, and if you aren't willing to wait, TLH anyway. In the future, especially if you've permanently shut off automatic (re)investments, you can try to make sure that you make no purchases for 30 days before you TLH.

What happens if you have a purchase within that window? It's no big deal--it just means an equal amount of "harvested" losses will simply be disallowed as wash sales. WHY WOULD A PURCHASE *BEFORE* THE SELLING EVENT BE CONSIDERED A WASH *SALE*? CAN SOMEBODY EXPLAIN THIS? OR IS IT WRONG?

AND

Step 5:
If the Alternate Fund has stayed flat or gone down, then sell the Alternate Fund, then (re)buy Initial Fund on Day 61 or later. Note: rebuying is optional. You should obviously do it if the Alternate Fund has gone down and you sold 100% of your position in the Initial Fund at Step 4--then you get to TLH again back into the Initial Fund (just make sure you don't buy any more in the Alternate Fund for 61 days!). If the Alternate Fund has gone up "substantially" DEFINED HOW?, though, you might want to stay in the Alternate Fund for a year (or forever) in order to avoid paying short term capital gains tax. (Make sure, therefore, that the Alternate Fund is one you could live with long term.) What, though, if you sold only part of your position in the Initial Fund? Now you own both it and the Alternate Fund, and *both* will have gone down. If you want to fully TLH again, you need to find a *third* fund that is highly correlated with the Initial and Alternate, but not "substantially similar" to anything else you own. Then just wash, rinse, repeat.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Fri Aug 28, 2015 10:07 am

I'll give it a shot.

The govt didn't want people to sell at a loss and then just rebuy what they sold. After all, the government does want its money and activity around that type of a loophole would just be egregious. So they prevented that by saying you can't rebuy the same stuff within 30 days.

If that were the only prohibition, people would just buy what they want to have ahead of time and then sell other shares of the same investment at a loss - completely getting around the prohibition. So the 30 days was made to apply both before and after selling at a loss.

So people are allowed to get a tax benefit for selling at a loss, but it is somewhat curtailed from what would happen if there were no 30 day buffer zone. If there were no 30 day buffer zone, the wash sale prohibition might as well not even exist.
You can reinvest them 61 days after you tax loss harvest.
As you are editing, you should probably take out references to 61 days - that only applies to Vanguard's frequent trading rules, not to tax loss harvesting.

Also, do not use the term "substantially similar". The wording in the law is "substantially identical".

As for gone up "substantially", that is an investor's own personal preference - I doubt there is a definition because it will depend on the individual situation.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by LadyGeek » Fri Aug 28, 2015 10:50 am

Roothy wrote: I'd like to forward this to the "suggestions" page of the wiki.
Thanks for doing this. When you're ready to make your suggestion in Suggestions for the Wiki, just make a brief note (please update the wiki, see this thread). That will flag the wiki editors to let them know you're ready to go.

The updates will need a forum consensus, which is best discussed as a stand-alone topic. IOW, this thread.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by House Blend » Fri Aug 28, 2015 12:32 pm

Roothy wrote:Step 0:
IGNORE THIS STEP FOR NOW if you are a newish investor whose Initial Fund currently has a cost-basis method of "average cost" and you show losses in the Fund as a whole. Otherwise, go to your Account Settings in your Initial Fund and change the cost-basis method to "specific identification" of share lots. Note that this will take a day or two for the company to process, and once you do it for the first time, if you've never sold any shares in that Fund (and you are boglehead so you probably haven't, right?), every "lot" of shares you have purchased *before* making the change will be priced at the average-cost basis anyway. In other words, converting to "specific lots" is really only going to be helpful to you going forward after this first TLH.
The bolded part is not correct. If this happens, then either you have actually sold shares of the fund before, or your broker has not finished the transition to Specific ID. You should call them and ask them to finish the job. I pointed this out to you in this post, but perhaps you still don't believe me.
viewtopic.php?p=2604183#p2604183

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 12:37 pm

House Blend wrote:
Roothy wrote:Step 0:
IGNORE THIS STEP FOR NOW if you are a newish investor whose Initial Fund currently has a cost-basis method of "average cost" and you show losses in the Fund as a whole. Otherwise, go to your Account Settings in your Initial Fund and change the cost-basis method to "specific identification" of share lots. Note that this will take a day or two for the company to process, and once you do it for the first time, if you've never sold any shares in that Fund (and you are boglehead so you probably haven't, right?), every "lot" of shares you have purchased *before* making the change will be priced at the average-cost basis anyway. In other words, converting to "specific lots" is really only going to be helpful to you going forward after this first TLH.
The bolded part is not correct. If this happens, then either you have actually sold shares of the fund before, or your broker has not finished the transition to Specific ID. You should call them and ask them to finish the job. I pointed this out to you in this post, but perhaps you still don't believe me.
viewtopic.php?p=2604183#p2604183

Apologies, I both got your message and tried to change the language to respond. Apparently I simply didn't understand. And I still don't. How about you edit it until it's right, and I'll cut and paste your language in?

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by House Blend » Fri Aug 28, 2015 12:54 pm

Replace
Note that this will take a day or two for the company to process, and once you do it for the first time, if you've never sold any shares in that Fund (and you are boglehead so you probably haven't, right?), every "lot" of shares you have purchased *before* making the change will be priced at the average-cost basis anyway. In other words, converting to "specific lots" is really only going to be helpful to you going forward after this first TLH.
With
Note that this will take a day or two for the company to process. If you've previously sold shares from this fund before, then the remaining (old) shares will continue be treated as having one average cost. Only the new purchases will be priced individually. If you have never sold shares of this fund before, and the individual purchases still show the same average cost after the switch to Specific ID, then your broker is Vanguard and you need to call and ask them to finish the job.
I could try to make it more accurate by inserting warnings about non-covered shares, but we'll define "newish" to mean that they started taxable investing in 2012 or later.

Edit: this is better.
Note that this will take a day or two for the company to process. If you've previously sold shares from this fund before, then the remaining (old) shares will continue be treated as having one average cost. Only the new purchases will be priced individually. If you have never sold shares of this fund before, then all of your purchases since 2012 should be separated into lots and priced individually. If they are separated into individual lots, but they still show the same average cost after the switch to Specific ID, then your broker is Vanguard and you need to call and ask them to finish the job.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 1:09 pm

House Blend wrote:Replace
Note that this will take a day or two for the company to process, and once you do it for the first time, if you've never sold any shares in that Fund (and you are boglehead so you probably haven't, right?), every "lot" of shares you have purchased *before* making the change will be priced at the average-cost basis anyway. In other words, converting to "specific lots" is really only going to be helpful to you going forward after this first TLH.
With
Note that this will take a day or two for the company to process. If you've previously sold shares from this fund before, then the remaining (old) shares will continue be treated as having one average cost. Only the new purchases will be priced individually. If you have never sold shares of this fund before, and the individual purchases still show the same average cost after the switch to Specific ID, then your broker is Vanguard and you need to call and ask them to finish the job.
I could try to make it more accurate by inserting warnings about non-covered shares, but we'll define "newish" to mean that they started taxable investing in 2012 or later.

Edit: this is better.
Note that this will take a day or two for the company to process. If you've previously sold shares from this fund before, then the remaining (old) shares will continue be treated as having one average cost. Only the new purchases will be priced individually. If you have never sold shares of this fund before, then all of your purchases since 2012 should be separated into lots and priced individually. If they are separated into individual lots, but they still show the same average cost after the switch to Specific ID, then your broker is Vanguard and you need to call and ask them to finish the job.
OK, I'll make the change. Note, though, that the reason I was confused is that I had never sold shares in my Fund, yet they were still showing the same average cost for each lot. I waited two or three days before I TLH after switching to specific id, and though they said the change would be "complete" in a day, it stayed that way. I didn't call them, though. It seems strange that I would have had to. Is that some kind of computer glitch? Or are they being obstreperous--they would prefer for some reason that we treat all our shares as average cost, so if you change to specific ID you then have to call and so, "No, I really, really meant it"?

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by House Blend » Fri Aug 28, 2015 1:22 pm

Roothy wrote:Note, though, that the reason I was confused is that I had never sold shares in my Fund, yet they were still showing the same average cost for each lot. I waited two or three days before I TLH after switching to specific id, and though they said the change would be "complete" in a day, it stayed that way. I didn't call them, though. It seems strange that I would have had to. Is that some kind of computer glitch?
Yes, I believe it's another example of inadequate IT processes at Vanguard. Someday they will probably get it right, but in the meantime, you need to be persistent.

Here is a thread from a couple of days ago on the exact same problem:
viewtopic.php?f=1&t=172540&p=2603350#p2603350

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 1:29 pm

House Blend wrote:
Roothy wrote:Note, though, that the reason I was confused is that I had never sold shares in my Fund, yet they were still showing the same average cost for each lot. I waited two or three days before I TLH after switching to specific id, and though they said the change would be "complete" in a day, it stayed that way. I didn't call them, though. It seems strange that I would have had to. Is that some kind of computer glitch?
Yes, I believe it's another example of inadequate IT processes at Vanguard. Someday they will probably get it right, but in the meantime, you need to be persistent.

Here is a thread from a couple of days ago on the exact same problem:
viewtopic.php?f=1&t=172540&p=2603350#p2603350
Frustrating. Since that thread mentions that their IT department is working on it, I'm going to note that it might be a temporary computer glitch at Vanguard.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 1:32 pm


OK, everyone. As far as I am concerned, this "step-by-step" guide is done. I'm going to just leave it for the rest of the day to let anyone who wants to, chime in. Then I'm going to send it to the suggestions page for the wiki.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Fri Aug 28, 2015 6:10 pm

retiredjg wrote:I'll give it a shot.

The govt didn't want people to sell at a loss and then just rebuy what they sold. After all, the government does want its money and activity around that type of a loophole would just be egregious. So they prevented that by saying you can't rebuy the same stuff within 30 days.

If that were the only prohibition, people would just buy what they want to have ahead of time and then sell other shares of the same investment at a loss - completely getting around the prohibition. So the 30 days was made to apply both before and after selling at a loss.

So people are allowed to get a tax benefit for selling at a loss, but it is somewhat curtailed from what would happen if there were no 30 day buffer zone. If there were no 30 day buffer zone, the wash sale prohibition might as well not even exist.
You can reinvest them 61 days after you tax loss harvest.
As you are editing, you should probably take out references to 61 days - that only applies to Vanguard's frequent trading rules, not to tax loss harvesting.

Also, do not use the term "substantially similar". The wording in the law is "substantially identical".

As for gone up "substantially", that is an investor's own personal preference - I doubt there is a definition because it will depend on the individual situation.
All changes made. And thanks for the explanation for the pre-30-day logic. It helps me to understand the whole process.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Fri Aug 28, 2015 7:51 pm

Roothy wrote: And thanks for the explanation for the pre-30-day logic. It helps me to understand the whole process.
Do realize that my explanation is speculation on my part - I didn't read the legislation. But it does make sense.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by LadyGeek » Fri Aug 28, 2015 8:23 pm

There's enough content to justify a new stand-alone wiki article. For now, I've created a draft wiki page. It's not linked to anything else in the wiki, so we're free to update / experiment as needed.

See: User:LadyGeek/Tax loss harvesting for beginners

When done, it will be linked in with the main Tax loss harvesting article.

All wiki editors are welcome (and encouraged) to edit the page directly. To start things off, I copied the first post exactly.

If anyone wants to become a wiki editor and make changes yourself, PM me with your request or follow the steps on the wiki home page (2nd paragraph).
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by dratkinson » Sat Aug 29, 2015 8:58 pm

Late to the party. Noticed the recent new topics on TLHing errors and wanted to submit my transaction checklists for consideration for Wiki inclusion. LadyGeek suggested I start here for the forum to review. Makes sense to me.

I use these checklists for all transactions, not just TLHing. They are not meant to be all inclusive, just reminders of things I should check. *So far, so good and I haven't had any fumble-fingered mistake since using them. Maybe they will work for others. (*Knock wood.)

[Begin checklists]

Transaction Checklists (Complete for each transaction pair.)

#1. Pre-transaction checklist. Review requirements for each planned transaction.

Vanguard requirements:
--Frequent trading policy---60-day online/phone lockout after sale. Exceptions: automatic transactions and US mail.
--Fund minimums (sold/bought).
--Admiral share minimums (sold/bought).
--Purchase/early-redemption fees.
--Distribution schedule (replacement shares/wash sale trigger).

IRS requirements:
--TLH fund selection---not substantially identical funds/ETFs to avoid in-kind purchase.
--QDI holding period requirement on underlying shares (>60 days).
--Muni tax-exempt dividend holding period requirement on underlying shares (>184 days).
--LTCG holding period requirement (>366 days).
--Replacement shares/wash sale holding period requirement (>±30 days).
--Swag Sch D reporting. (Use my records for uncovered shares, or Vanguard's to determine cost basis of sold shares.)

Notes:
--Not substantially identical if funds/ETFs use different indexes or different active management.
--Avoid harvesting LTCG with TLH carryover---will waste higher tax benefit.
--Buy after ex-dividend date---cheaper purchase price, avoids buying a taxable distribution.
--Sell before ex-dividend date---harvests LTCG instead of ST taxable distribution, better for TLH.
--Own unique funds across family accounts---avoids substantially identical security, in-kind/wash sale trigger.
--Don't reinvest dividends---avoids replacement shares/wash sale trigger.

Review all requirements prior to any transaction, in taxable and in tax-advantaged. Execute only those that meet all requirements.


#2. Ordered-transaction checklist. Write an ordered list of transactions that passed #1 requirements.
--Execution date. (Chosen to comply with holding period requirements and avoid VFTP lockout.)
--Account type. (401k/IRA/taxable....)
--Selling fund name/symbol/number, purchase dates. (Sell/TLH before ex-dividend. Don't harvest LTCG with TLH carry over.)
--Shares or amount.
--Buying fund name/symbol/number, shares. (Buy after ex-dividend.)
--Record transaction number.
--Record CSR's name (Phone transactions.)
--Save Vanguard transaction documentation for tax records. Correct any error.

Example of (single entry) ordered-transactions checklist.
24 Aug, in taxable, sell VMSXX/45, purchase date NA, $10K, buy VFWAX/570 (Use as much needed detail to completely identify transaction.)


Complete #1 and #2 a few days before transaction(s) executed.
Review both on day of execution. Use #2 to input and double-check each transaction as executed.

[End checklists.]
Last edited by dratkinson on Mon Aug 31, 2015 1:38 pm, edited 1 time in total.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Keep It Simple » Sun Aug 30, 2015 11:25 am

For those who are unlucky enough to be holding pre-2012 non-covered shares, tax loss harvesting is that much more complicated to the point I'm not sure it is worth the hassle of tracking your non-covered shares cost basis for decades in the future. If you switch to specific id, Vanguard does not provide you the cost basis for each lot you bought pre-2012.

No one ever seems to mention this when they discuss how easy tax loss harvesting is. Try tracking all this when you get to be older and your mind isn't as sharp. Doesn't sound so easy anymore...

K.I.S.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Sun Aug 30, 2015 12:28 pm

I am holding pre-2012 non-covered shares. I am not unlucky at all. In fact, I am incredibly luck to have such shares. It is absolutely trivial to track things. I even tax-loss harvested a little bit last week in a fund that had non-covered and covered shares. The fund was held at Vanguard and it was absolutely trivial to harvest the shares with losses.

I still have shares with losses that I will not be harvesting soon. The reason I will not be harvesting them any time soon is that they are relatively small AND I bought/sold thousands of shares of the same ETFs in my 401(k) last week and I still have some shares hanging around in that acount. I felt it was better to rebalance into these ETFs than to worry about a relatively small TLH opportunity.

But I will let folks be the judge on how easy it is for me to see if I have shares that have losses. Here is a screen capture of a taxable account of mine with all my remaining shares with unrealized losses:
Image

Some things to point out:
1. This screen capture shows ALL my holdings in one of my taxable accounts and when I purchased those holdings. One can see that I am not a big trader.
2. Even if one is red/green color-blind, the negative values are shown in parentheses (), so one can tell they are negative.
3. The nc superscript means non-covered.
4. Do any of those "Trade Date"s indicate past RBDs?
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Keep It Simple
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Keep It Simple » Sun Aug 30, 2015 12:51 pm

Livesoft,

My post was meant to point out that keeping track of the cost basis of non-covered shares is complicated and having to do so for decades is not something that is very appealing to some. I was not saying that it is difficult to see which shares have losses...Vanguard makes that easy.

Also I do not think that the IRS would see tracking the cost basis of your non-covered shares as trivial or unimportant.

Are you saying that Vanguard has implemented a screen showing you the cost basis of your non-covered shares? If not, how is tracking non-covered share cost basis simple?

K.I.S.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Sun Aug 30, 2015 1:04 pm

Yes, Vanguard shows cost basis of non-covered shares. So do other brokers. I made a customized view for my screen capture and removed the "Cost Basis" column and the "Number of Shares" column before I did the screen capture in an attempt to not release the size of my taxable account.

[OT comments removed by admin LadyGeek]

My point is that somehow a myth persists that Cost Basis is not readily available on the web pages of your account. One doesn't even need a spreadsheet to keep track of it.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by House Blend » Sun Aug 30, 2015 2:13 pm

^Posting how trivial things are for you isn't helpful.
Being deliberately obtuse isn't helpful either.

Apropos of the post from KIS, there is a silver lining: the market will have to drop quite a bit further before people are likely to have any non-covered shares worth harvesting. If that happens, I expect there will be lots of threads here from people asking about how to use Specific ID with non-covered shares at Vanguard.

The answer has two parts:
1. You can't, if you have ever sold non-covered shares of your fund and used average basis. (Tax law, not Vanguard rules.)

2. If you've never sold non-covered shares of your fund (or used some other cost basis method when you did sell), then you are free to (in the parenthetical case, must) ignore the average cost information that Vanguard provides and instead track the cost basis of your non-covered shares yourself. In contrast to covered shares, this is not a matter of clicking buttons and importing Forms 1099-B into turbotax. It requires communicating with Vanguard by secure email or in writing and maintaining your own records. Much more of a PITA.
See: https://www.bogleheads.org/wiki/Specifi ... _of_shares

This issue came up frequently here on BH back in the days when covered shares did not exist.

I expect many Bogleheads with Vanguard accounts will decide to forgo tax loss harvesting any of their non-covered shares (should the opportunity arise). I don't have a problem with that. I also don't have a problem with Bogleheads who choose not to tax loss harvest at all.

Rule 0 of TLH: don't try it just because that's what all the cool kids are doing.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Sun Aug 30, 2015 2:44 pm

I am not sure why any of what I wrote is obtuse.

I don't want to apologize for anything Vanguard does or does not do, but I can state that Vanguard shows me online the cost basis for the non-covered shares in my taxable account. Vanguard also shows me online every individual purchase made with number of shares, share price, and total price.

Are people stating that Vanguard does not give them this information for their taxable accounts?
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by House Blend » Sun Aug 30, 2015 4:19 pm

livesoft wrote:I am not sure why any of what I wrote is obtuse.

I don't want to apologize for anything Vanguard does or does not do, but I can state that Vanguard shows me online the cost basis for the non-covered shares in my taxable account. Vanguard also shows me online every individual purchase made with number of shares, share price, and total price.

Are people stating that Vanguard does not give them this information for their taxable accounts?
I think the misunderstanding (and in retrospect, not obtuseness--my mistake) is that you own ETFs. I own Vanguard mutual funds in a non-brokerage Vanguard account.

For my Vanguard mutual funds with non-covered shares, Vanguard does not show me the cost basis of my non-covered shares. It shows me what it would be if I were using average cost basis. But I am not using average basis (for covered or non-covered shares), so their cost basis record for the non-covered shares is wrong.

And under the "Show Details" under "Cost Basis" the non-covered shares are shown as one giant lump, no individual list of purchases. Of course such information
is available in "Transaction History" if it goes back far enough.

And if I try to sell non-covered shares through their online interface, all I get to choose is how many shares (or dollars worth) of non-covered shares I want to sell. I don't get to choose which of those shares are sold. For that, I have to supply additional information to Vanguard through other channels, such as by secure email.

It would be interesting to know what happens with Vanguard mutual funds held in "upgraded" VBS accounts. (Old brokerage accounts could not hold Vanguard mutual funds.) That is, can you use Specific ID for non-covered shares? If so, that would be a feature that might entice many Vanguard mutual fund diehards to get upgraded.

And it would be worthy of a new thread.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Sun Aug 30, 2015 4:33 pm

House Blend wrote:I think the misunderstanding (and in retrospect, not obtuseness--my mistake) is that you own ETFs. I own Vanguard mutual funds in a non-brokerage Vanguard account.

For my Vanguard mutual funds with non-covered shares, Vanguard does not show me the cost basis of my non-covered shares. It shows me what it would be if I were using average cost basis. But I am not using average basis (for covered or non-covered shares), so their cost basis record for the non-covered shares is wrong.

And under the "Show Details" under "Cost Basis" the non-covered shares are shown as one giant lump, no individual list of purchases.
Just like you, I do not hold ETFs in my non-brokerage Vanguard taxable account. I sold mutual fund shares last week from my Vanguard mutual fund account at a loss in order to tax-loss harvest my loss. The shares I sold were covered as my non-covered shares date from 2009 and do not have loss. As you already noted, old (i.e. non-covered) shares are unlikely to have a loss and be something to worry about. And as you noted, one can still see the basis of every lot by looking at "Transactions". Thus, one (or at least I) can tell that my old non-covered shares do not have a loss readily and easily.

I do not have a taxable brokerage account at Vanguard BS.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Sun Aug 30, 2015 8:15 pm

Last edited by livesoft on Wed Sep 02, 2015 12:36 pm, edited 1 time in total.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Mon Aug 31, 2015 6:27 am

I like it!

I'm stumbling a little on the term "replacement shares" - only because I wonder if you are using the term differently from Kaye Thomas and if so that could confuse some people. I have not read his stuff in awhile so I guess I need to do that.

At some point, I think it would be good to explain Thanksgiving. As I recall, you like to sell all your losses by the end of the year. You might consider making that decision optional for others.

It had not occurred to me that minor children's accounts are involved.

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by bogleviewer » Tue Sep 01, 2015 10:59 am

Step 1:
Ideally, you should not do your first tax loss harvest until at least 30 days have passed since your last purchase into the Initial Fund--that includes automatic payments, or reinvested dividends and capital gain distributions. But for simplicity, and if you aren't willing to wait, TLH anyway. In the future, especially if you've permanently shut off automatic (re)investments, you can try to make sure that you make no purchases for 30 days before you TLH. What happens if you have a purchase within that window? It's no big deal--it just means an equal amount of "harvested" losses will simply be disallowed as wash sales.
I am confused in my situation. I have VTI and VXUS in taxable account that I purchased along multiple days LAST WEEK that are sitting at a net ~3% loss and the dollar figure is worth TLH. I bought them LAST WEEK on different dates; it has not been a month and I did not own any prior to last week.

Last week I also purchased VTI and VXUS mutual fund equivalent in IRA account in one single day. Again, last week where prior I had nothing in the account.

Question:
1. What exactly does "it just means an equal amount of "harvested" losses will simply be disallowed as wash sales" mean? Can you give me an example?

2. Do I have to sell the IRA VTI/VXUS mutual fund equivalent as part of the overall TLH and replace with an alternate fund or does it not matter simply because it is a mutual fund (not ETF) and it is in a non-taxable account (rather than taxable where bulk of losses are).

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by sperry8 » Tue Sep 01, 2015 11:10 am

livesoft wrote:I put on my "TurboTax/IRS language hat" and wrote out this [unfinished] TLH algorithm draft which I am submitting here for comments:

Do you have any shares in your taxable account that have a price lower than what you paid for them?

No - Stop here, you do not have a harvestable loss for tax purposes.

Yes -

For all the shares with a lower price, how much is the sum of the loss of the shares?

Less than $500 - Stop here, it is probably not worth harvesting this loss for you.

$500 or more?

For all the shares with a lower price, what percentage is the sum of the loss compared to the value of those shares?

Less than 3%? -
Yes. Is it before Thanksgiving? -
Yes. Have you owned these shares less than 11 months?
Yes. Stop here. It may be better to wait to TLH these shares.
No, continue below

3% or more loss or you answered No - You have a loss that may be worthwhile harvesting, so let's check some other things about a potential wash sale.

If you sell these shares, will you still have in your possession OTHER shares?
(OTHER shares mean shares of substantially identical securities in your taxable
accounts, your IRAs, your spouse's IRAs, your spouse's taxable accounts,
joint accounts, your minor children's accounts, etc.):

No. - No problem with wash sale, continue below.
Yes. - OK, were these OTHER shares purchased in the same transaction as
the shares you are selling? Yes, then no wash sale, continue below.
No. - OK were these OTHER shares purchased more than 30 (31?) days ago?
(Even from reinvesting dividends which really are a share purchase)
Yes, then no wash sale, continue below.
No. - You will create a wash sale if you sell your shares. STOP HERE unless
you do not mind creating a possible wash sale.


If you decide to sell your shares at a loss, you MUST ALSO avoid creating a
wash sale AFTER you have sold your shares at a loss. Let's check that now.

If you sell these shares, will you purchase in the 30 days after you sell these shares OTHER substantially identical shares in any amount greater than zero shares (even 0.001 shares)? (This includes reinvested dividends.)
(OTHER shares mean shares of substantially identical securities in your taxable
accounts, your IRAs, your spouse's IRAs, your spouse's taxable accounts,
joint accounts, your minor children's accounts, etc.):

No. - No problem with wash sale, continue below.
Yes. - It seems you will create a wash sale unless you do not purchase
these other shares. You must stop yourself from purchasing these
OTHER shares (for all accounts: turn off automatic purchases,
turn off automatic dividend reinvestment, etc).

- No WASH SALE and a harvestable loss. Continue.

Do you wish to buy REPLACEMENT shares of something that is SIMILAR, but not SUBSTANTIALLY IDENTICAL in order to maintain your asset allocation or for another reason?

- No. OK, sell your shares with a harvestable loss. You are done. Stop here.
- Yes. OK, you need to choose the investment you wish to use for the REPLACEMENT shares.


REPLACEMENT SHARES
yet to be written
I love this! I was about to post a variety of questions... then read this. No need to now.

Re strategy for TLH... shares are down now. I could harvest (something like $5k). But perhaps shares drop more. So then I suppose I could keep on harvesting on the way down. Is that a better strategy than waiting and harvesting all at once when the TLH amount is material (to me)? Do I gain anything by waiting to do it all in one lump sum?
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Tue Sep 01, 2015 11:15 am

@bogleviewer, if you sell the shares in the taxable account at a loss, then the shares in the IRA would be considered replacement shares and you would have a wash sale. The wash sale could be a partial wash sale or not.
Examples:
100 shares in taxable sold at a loss.

200 newly purchased shares in IRA. More new shares in IRA than sold in taxable. Full wash sale. The loss realized from selling 100 shares in taxable is disallowed.

50 newly purchased shares in IRA. Fewer new shares in IRA than sold in taxable. Partial wash sale. The loss realized from selling 50 shares in taxable is disallowed.

100 newly purchased shares in IRA. Same number of new shares in IRA than sold in taxable. Full wash sale. The loss realized from selling 100 shares in taxable is disallowed.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Tue Sep 01, 2015 11:19 am

bogleviewer wrote:2. Do I have to sell the IRA VTI/VXUS mutual fund equivalent as part of the overall TLH and replace with an alternate fund or does it not matter simply because it is a mutual fund (not ETF) and it is in a non-taxable account (rather than taxable where bulk of losses are).
It DEFINITELY DOES MATTER.

The recent purchase of substantially identical shares in the IRA will make any selling at a loss in taxable a wash sale. Can you sell the newly purchased shares in the IRA a day or two ahead of selling at a loss in your taxable account? See this thread: viewtopic.php?f=1&t=172243
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Tue Sep 01, 2015 11:26 am

sperry8 wrote:Re strategy for TLH... shares are down now. I could harvest (something like $5k). But perhaps shares drop more. So then I suppose I could keep on harvesting on the way down. Is that a better strategy than waiting and harvesting all at once when the TLH amount is material (to me)? Do I gain anything by waiting to do it all in one lump sum?
I would not be in such a hurry. I would wait for another RBD in the shares you wish to sell.

One possible advantage of waiting is that you will only have to go back to the original investment once at the market low. Yes, I just made a prediction: The market has not stopped going lower. :) Then you might think, "If the market is going lower, I might as well go to cash now and stop losing more money." Ah, but the market might go higher, too. :)
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by Roothy » Tue Sep 01, 2015 11:37 am

livesoft wrote:
Roothy wrote:Well, for what it's worth, I pulled the trigger. Wish I could have been confident enough to do it two days ago, but whatever. Looks like I'll realize somewhere in the neighborhood of -$8000.

If the market drops again between now and 31 days from now, I can TLH harvest again, right? So long as I find some third vehicle into which to put the money?
Don't make your head explode. If it drops again, just wait for 31 days and go back to your original fund.

But think about what you just did: You bought low, so less chance of tax-loss harvesting in the immediate future.
Livesoft, I know you said not to make my head explode. But after TLH last week, if the drops from today continue I will have another +$3500-ish I could TLH again. I have found what I think are appropriate alternatives for the two funds I'd like to TLH again (VLCAX--> VTCLX, and VFWAX --> VTMGX --if I get "stuck" in those places, I'll just buy in some complementary funds over time to make them more like my original preferred holdings of VTSAX and VTIAX).

Would you still recommend I cool my heels until 31 (or 61) days have passed since the initial TLH? I don't want to risk losing the $3500 loss... but maybe I'm being too eager. This TLH gig is kind of addictive...

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Tue Sep 01, 2015 11:39 am

Do what you want. Do what you need to do. :)

If the drops become substantial, then by all means TLH again, but a 3% drop is not substantial to me at the moment. It could be for you though.
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by 1210sda » Tue Sep 01, 2015 12:00 pm

livesoft wrote:I put on my "TurboTax/IRS language hat" and wrote out this [unfinished] TLH algorithm draft which I am submitting here for comments:

Do you have any shares in your taxable account that have a price lower than what you paid for them?

No - Stop here, you do not have a harvestable loss for tax purposes.

Yes -

For all the shares with a lower price, how much is the sum of the loss of the shares?

Less than $500 - Stop here, it is probably not worth harvesting this loss for you.

$500 or more?

For all the shares with a lower price, what percentage is the sum of the loss compared to the value of those shares?

Less than 3%? -
Yes. Is it before Thanksgiving? -
Yes. Have you owned these shares less than 11 months?
Yes. Stop here. It may be better to wait to TLH these shares.
No, continue below

3% or more loss or you answered No - You have a loss that may be worthwhile harvesting, so let's check some other things about a potential wash sale.

If you sell these shares, will you still have in your possession OTHER shares?
(OTHER shares mean shares of substantially identical securities in your taxable
accounts, your IRAs, your spouse's IRAs, your spouse's taxable accounts,
joint accounts, your minor children's accounts, etc.):

No. - No problem with wash sale, continue below.
Yes. - OK, were these OTHER shares purchased in the same transaction as
the shares you are selling? Yes, then no wash sale, continue below.
No. - OK were these OTHER shares purchased more than 30 (31?) days ago?
(Even from reinvesting dividends which really are a share purchase)
Yes, then no wash sale, continue below.
No. - You will create a wash sale if you sell your shares. STOP HERE unless
you do not mind creating a possible wash sale.


If you decide to sell your shares at a loss, you MUST ALSO avoid creating a
wash sale AFTER you have sold your shares at a loss. Let's check that now.

If you sell these shares, will you purchase in the 30 days after you sell these shares OTHER substantially identical shares in any amount greater than zero shares (even 0.001 shares)? (This includes reinvested dividends.)
(OTHER shares mean shares of substantially identical securities in your taxable
accounts, your IRAs, your spouse's IRAs, your spouse's taxable accounts,
joint accounts, your minor children's accounts, etc.):

No. - No problem with wash sale, continue below.
Yes. - It seems you will create a wash sale unless you do not purchase
these other shares. You must stop yourself from purchasing these
OTHER shares (for all accounts: turn off automatic purchases,
turn off automatic dividend reinvestment, etc).

- No WASH SALE and a harvestable loss. Continue.

Do you wish to buy REPLACEMENT shares of something that is SIMILAR, but not SUBSTANTIALLY IDENTICAL in order to maintain your asset allocation or for another reason?

- No. OK, sell your shares with a harvestable loss. You are done. Stop here.
- Yes. OK, you need to choose the investment you wish to use for the REPLACEMENT shares.


REPLACEMENT SHARES
yet to be written
Thank You Livesoft
1210

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by livesoft » Tue Sep 01, 2015 12:07 pm

OK, a few people have quoted my entire algorithm draft with a thanks, but maybe it has some errors!!! Corrections are welcome! Thanks!

(For instance, it does not address qualified dividend things … yet)
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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by retiredjg » Tue Sep 01, 2015 12:08 pm

livesoft wrote:I put on my "TurboTax/IRS language hat" and wrote out this [unfinished] TLH algorithm draft which I am submitting here for comments:
I'm looking forward to seeing this in decision tree chart form. :happy

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Re: TLH for absolute dummies [Tax Loss Harvesting]

Post by kolea » Tue Sep 01, 2015 2:25 pm

The Wiki article on TLH does not really address whether it makes sense for a retiree to TLH. It looks less compelling to me. I certainly would not want to convert erstwhile LTCG into short term CG because I had TLH and then turned around and made a withdrawal. I suppose that can all be managed with book-keeping but it looks like it would get complicated. Any comments on TLH when one is retired?
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