How to TLH in Real LIfe

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Barefootgirl
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How to TLH in Real LIfe

Post by Barefootgirl » Sat Apr 08, 2017 6:21 pm

Ok, so the subject line is meant to be a half hearted joke, but I am feeling the pain.

Since my income and expense situation for 2016 so closely tracked to 2015, I expected to come out the same, about even. Instead, for 2016, I end up owing about $1K.

I went back to analyze both years. It seems the only significant difference lies in the fact that I was able to take the full $3K capital loss carryover for 2015 and only about $1.4K for 2016...so that means no more losses for now or going forward unless I find new ones, lol.

I read about TLH in theory, but not much about the real application.

It's not that I didn't think about it during the year. It's just that every time I had a spare moment to look into I got bogged down in the 30,40,50+ (?) page TLH for Dummies thread. I thought about putting the taxable funds under the control of a robo service, since as I recall, that's one of the primary benefits....and well, over the years, I have slowly divested myself of stocks and mostly own just mutual funds now.

If anyone has a relatively painless, straightforward method they use, would love to hear it. Seems like every time the market dipped in 2016, I was heading into a meeting...work often gets in the way of personal finance :?
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livesoft
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Re: How to TLH in Real LIfe

Post by livesoft » Sat Apr 08, 2017 6:32 pm

Yes, those threads really got into unnecessary details I would say.

Hee is what I actually do:

On a day when the news media is noting a "worst day in …" in the headlines*, I login to my account and look for red numbers , If they are large enough, then I tax-loss harvest. Simple.

*Or there are at least three threads with "TLH" in the thread title at bogleheads.org first page.
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Re: How to TLH in Real LIfe

Post by mortfree » Sat Apr 08, 2017 7:20 pm

if you aren't maxing your 401k (assuming you have one), just contribute more and that will lower your Income.




.

Barefootgirl
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Re: How to TLH in Real LIfe

Post by Barefootgirl » Sat Apr 08, 2017 7:23 pm

I am maxing my 401K plus Catch Up contributions plus full HSA and an FSA....still need to get lower...
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Re: How to TLH in Real LIfe

Post by mortfree » Sat Apr 08, 2017 7:24 pm

Barefootgirl wrote:I am maxing my 401K plus Catch Up contributions plus full HSA and an FSA....still need to get lower...

Can you do a Traditional IRA to lower your income??

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Re: How to TLH in Real LIfe

Post by Nate79 » Sat Apr 08, 2017 7:26 pm

You can only TLH when you actually have a loss which recently doesn't seem often. Just log in every once in a while or on bad market days and see if any positions have losses. If so and you don't have any wash sale then sell and buy an appropriate fund that is similar.

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Re: How to TLH in Real LIfe

Post by Barefootgirl » Sat Apr 08, 2017 7:26 pm

Can you do a Traditional IRA to lower your income??
I don't believe I qualify since my employer offers the 401K and I contribute to it.

I could still contribute to a TIRA, but it would not be deductible in that case (due to the 401k)
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Re: How to TLH in Real LIfe

Post by Barefootgirl » Sat Apr 08, 2017 7:27 pm

If so and you don't have any wash sale then sell and buy an appropriate fund that is similar.
Do you know if there is a list anywhere of fund pairs deemed similar enough to meet the test?
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Re: How to TLH in Real LIfe

Post by ved » Sat Apr 08, 2017 7:44 pm

Barefootgirl wrote:I am maxing my 401K plus Catch Up contributions plus full HSA and an FSA....still need to get lower...
How are you contributing to an HSA and an FSA?
I thought it was either one or the other.

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Re: How to TLH in Real LIfe

Post by Barefootgirl » Sat Apr 08, 2017 9:53 pm

How are you contributing to an HSA and an FSA?
I thought it was either one or the other.
Maybe I have my acronyms confused. I am contributing to both an HSA and Healthcare Reimbursement Account, both offered by my employer.
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Re: How to TLH in Real LIfe

Post by Chip » Sun Apr 09, 2017 6:38 am

Barefootgirl wrote:
Can you do a Traditional IRA to lower your income??
I don't believe I qualify since my employer offers the 401K and I contribute to it.

I could still contribute to a TIRA, but it would not be deductible in that case (due to the 401k)
This is a common misconception. Even if you are covered by a retirement plan at work, you MAY still be eligible for a deductible IRA contribution. It depends on your income.

See this table at irs.gov.

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Re: How to TLH in Real LIfe

Post by rkhusky » Sun Apr 09, 2017 6:51 am

The market has done well recently, so there just might not be opportunities to TLH. I don't think you want to force the issue, for example by purposely buying when the market is high so that you can generate losses to TLH. Just let the TLH come to you by buying shares on your normal schedule and watching for drops in the market. Plus it seems like too much work to try to string together 100 $30 losses, I would just wait for losses of at least a few hundred dollars.

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Re: How to TLH in Real LIfe

Post by Barefootgirl » Sun Apr 09, 2017 6:52 am

It depends on your income.
My income precludes me from a deduction for this.

Deductions seem to be designed for the people who need them least or are least able to take advantage of them. Those who would need or desire them the most are shut out.

It's all a scam ;)
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livesoft
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Re: How to TLH in Real LIfe

Post by livesoft » Sun Apr 09, 2017 7:43 am

rkhusky wrote:Plus it seems like too much work to try to string together 100 $30 losses, I would just wait for losses of at least a few hundred dollars.
:shock:
How can clicking a hundred checkboxes be "too much work" ,,, even if they have sub $3 losses?
As I showed here --> viewtopic.php?p=2718843#p2718843
seeing red and clicking are no work at all.

But yes, wait for losses of at least a few hundred dollars.
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Re: How to TLH in Real LIfe

Post by House Blend » Sun Apr 09, 2017 9:17 am

Barefootgirl wrote:
If so and you don't have any wash sale then sell and buy an appropriate fund that is similar.
Do you know if there is a list anywhere of fund pairs deemed similar enough to meet the test?
Better to ask specific questions about *your* situation than an open-ended question that invites irrelevant answers and leads down into the same sink hole that swallowed the TLH for Dummies thread.
Seems like every time the market dipped in 2016, I was heading into a meeting...
Not a valid excuse. Typically missing a dip by one day is not going make a difference between TLH success and failure. The sweet spot is "good enough", not "best possible".

On the other hand, if you sometimes don't have access to your account for a week or more at a time (long vacations maybe?), you may have to accept missing out on some opportunities.

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Re: How to TLH in Real LIfe

Post by Earl Lemongrab » Sun Apr 09, 2017 11:13 am

Barefootgirl wrote:Do you know if there is a list anywhere of fund pairs deemed similar enough to meet the test?
There is no such list by any official authority. There is a wide variance in opinion by various writers and Bogleheads.
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Re: How to TLH in Real LIfe

Post by The Wizard » Sun Apr 09, 2017 11:15 am

Barefootgirl wrote:
If so and you don't have any wash sale then sell and buy an appropriate fund that is similar.
Do you know if there is a list anywhere of fund pairs deemed similar enough to meet the test?
Actually, you have that a bit backwards: the TLH fund pairs need to be DIFFERENT to at least a small degree.
If you stay within one fund family​, almost any two funds will be different enough.
The target date funds are an exception, since the TR 2055 and TR 2060 are identical right now.*

The most common TLH pair is likely TSM and S&P 500...

* I checked and TR 2055 is not "identical" to TR 2060 but they are close enough that I wouldn't TLH between them. And regardless, TLH-savvy folks aren't going to be using balanced funds...
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Re: How to TLH in Real LIfe

Post by The Wizard » Sun Apr 09, 2017 11:18 am

A better question to ask might be: how much of a loss in a specific lot is worthwhile to harvest?
Of course, having harvested from fund A to fund B, to could still harvest further two months later (if situation dictates) from fund B to fund A or C, but the latter harvest would be a short term loss.
I'm not experienced enough in this to know if that's good or bad...
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Re: How to TLH in Real LIfe

Post by LadyGeek » Sun Apr 09, 2017 12:20 pm

This thread is now in the Investing - Theory, News & General forum (general investing).
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Re: How to TLH in Real LIfe

Post by goingup » Sun Apr 09, 2017 12:51 pm

It makes more sense to wait until the Market dips and see which of your funds has a loss. Meantime, you should have the cost basis set to SPEC ID.

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Re: How to TLH in Real LIfe

Post by fposte » Sun Apr 09, 2017 1:21 pm

livesoft wrote: Hee is what I actually do:

On a day when the news media is noting a "worst day in …" in the headlines*, I login to my account and look for red numbers , If they are large enough, then I tax-loss harvest. Simple.
Livesoft, are you avoiding the possibility of wash sales in your 401k/403b accounts, or are you in the camp that believes the IRS ruling doesn't apply? My 457 doesn't have a lot of choices and clumsily requires changes by mail, so I've been avoiding harvesting my Total Bond Fund losses in taxable because of my bond contributions in the 457.

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Re: How to TLH in Real LIfe

Post by kite » Sun Apr 09, 2017 1:39 pm

One thing I wasn't clear on for a long time is which accounts you can TLH in. My understanding is you can't TLH within your 401(k) or ROTH. The only account you can TLH is within your personal, after-tax accounts.

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Re: How to TLH in Real LIfe

Post by MotoTrojan » Sun Apr 09, 2017 1:54 pm

The Wizard wrote:A better question to ask might be: how much of a loss in a specific lot is worthwhile to harvest?
Of course, having harvested from fund A to fund B, to could still harvest further two months later (if situation dictates) from fund B to fund A or C, but the latter harvest would be a short term loss.
I'm not experienced enough in this to know if that's good or bad...
Short-term losses are the best as they can be used to offset long-term or short-term gains. For the long-term investing (not selling shares above cost-basis) this doesn't make a difference, but my point is that you should still harvest your short-term losses, if it fits into your overall harvesting strategy.

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Re: How to TLH in Real LIfe

Post by livesoft » Sun Apr 09, 2017 2:51 pm

fposte wrote:Livesoft, are you avoiding the possibility of wash sales in your 401k/403b accounts, or are you in the camp that believes the IRS ruling doesn't apply?
Since it is trivial for me to avoid the possibility of wash sales in our 401(k)/403(b) accounts, I do that.

I suppose if it wasn't trivial, then I would be in the camp that the IRS ruling doesn't apply to such accounts. I have read the ruling and it goes to extra length to state that it only applies to IRAs. Also, I don't fear the IRS because they have always done right by me.
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Re: How to TLH in Real LIfe

Post by MotoTrojan » Sun Apr 09, 2017 2:55 pm

Does Betterment or other companies provide any insight into how their algorithm works? Any uses look at transaction history enough to tell? Curious what thresholds they use for selling. In theory, with low-cost index funds, you could have a $1/share threshold and just be selling left and right as the stock dances around. With 3 similar funds, you could do this forever.

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Re: How to TLH in Real LIfe

Post by cookymonster » Sun Apr 09, 2017 3:08 pm

MotoTrojan wrote:Does Betterment or other companies provide any insight into how their algorithm works? Any uses look at transaction history enough to tell? Curious what thresholds they use for selling. In theory, with low-cost index funds, you could have a $1/share threshold and just be selling left and right as the stock dances around. With 3 similar funds, you could do this forever.
The threshold for when to sell for me is transaction-specific. You have to consider the cost of transaction fees and bid/ask spreads as something that has to be overcome for a TLH transaction to be worth it. Beyond that, it depends on which TLH partner I prefer over the other. Usually one costs a little more to hold over the long term than the other in terms of ER and tax-efficiency. If I am going from the more expensive one to the better one, I will make the switch as soon as I can. If I am faced with a switch to the more expensive one, I'll look at the size of the loss, ask myself how much I'll expect to save in long-term capital gains in the future by taking it, and then compare that to how much more the partner is going to cost to own in the long term.

That's probably more work than most people are willing to do. It's also perhaps more work than I'm willing to do going forward. I'm starting to question the logic of having TLH "partners" at all going forward. Once you have your money in the best fund, is harvesting a loss one time worth the risk of moving your money to a more expensive and inferior (if only slightly) alternative forever? That could cost a lot more in the long run. Instead, I may just start taking my money out of the market for 30 days once I have a large enough loss worth harvesting.

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Re: How to TLH in Real LIfe

Post by MotoTrojan » Sun Apr 09, 2017 3:13 pm

cookymonster wrote:
MotoTrojan wrote:Does Betterment or other companies provide any insight into how their algorithm works? Any uses look at transaction history enough to tell? Curious what thresholds they use for selling. In theory, with low-cost index funds, you could have a $1/share threshold and just be selling left and right as the stock dances around. With 3 similar funds, you could do this forever.
The threshold for when to sell for me is transaction-specific. You have to consider the cost of transaction fees and bid/ask spreads as something that has to be overcome for a TLH transaction to be worth it. Beyond that, it depends on which TLH partner I prefer over the other. Usually one costs a little more to hold over the long term than the other in terms of ER and tax-efficiency. If I am going from the more expensive one to the better one, I will make the switch as soon as I can. If I am faced with a switch to the more expensive one, I'll look at the size of the loss, ask myself how much I'll expect to save in long-term capital gains in the future by taking it, and then compare that to how much more the partner is going to cost to own in the long term.

That's probably more work than most people are willing to do. It's also perhaps more work than I'm willing to do going forward. I'm starting to question the logic of having TLH "partners" at all going forward. Once you have your money in the best fund, is harvesting a loss one time worth the risk of moving your money to a more expensive and inferior (if only slightly) alternative forever? That could cost a lot more in the long run. Instead, I may just start taking my money out of the market for 30 days once I have a large enough loss worth harvesting.
I suppose that depends on how you feel about the partners. For some funds (TSM to VV/VOO) I feel they are essentially equivalent. When I start putting VIOV (currently only in Roth) into taxable, I'll be less excited about VBR/VONV as partners.

But my question was specific to how the robo-advisors handle it, not what the best way is for a human (or robo) to go about it.

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Re: How to TLH in Real LIfe

Post by livesoft » Sun Apr 09, 2017 3:14 pm

cooky monster wrote: You have to consider the cost of transaction fees and bid/ask spreads as something that has to be overcome for a TLH transaction to be worth it.
While it is true that one should consider the cost of transaction fees and bid/ask spreads, the reality is that one should have transaction fees of zero and the bid/ask spread can work in your favor or not even exist (if you use mutual funds).

In other words, this TLH thread is turning into all the other threads with lots of "What if! What if! What even if!" statements that don't apply in Real Life.
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Re: How to TLH in Real LIfe

Post by Lynette » Sun Apr 09, 2017 3:34 pm

Thanks to instruction from Livesoft I got great tax lost harvesting opportunities in 2016. Figure out how to determine when you have a loss and what an acceptable pair is for the fund to avoid a wash sale. Then wait for a post from Livesoft indicating that it is a Really Bad Day.:D Check if this applies fo your fund and then act :). At the moment you likely don't have losses with the market up so much but it will dip. Seriously you don't have to wait for Livesoft's Really Bad Day - just check your funds to see if you have a loss.

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Re: How to TLH in Real LIfe

Post by livesoft » Sun Apr 09, 2017 4:05 pm

Lynette wrote:Thanks to instruction from Livesoft I got great tax lost harvesting opportunities in 2016.
Hmmm, that kinda reads like I made your funds go down in 2016, so you could tax lost harvest. :(
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Re: How to TLH in Real LIfe

Post by Lynette » Sun Apr 09, 2017 4:41 pm

:) :) Hasty wording - needed a break from cleaning my hardwood floors with vinegar and water to get rid of ants! Thanks for showing us how to do tax loss harvesting when the market dips.

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Re: How to TLH in Real LIfe

Post by CurlyDave » Mon Apr 10, 2017 12:29 am

I am mystified.

Why would not having any losses to harvest be bad?

I understand the concept of a TLH, but if all of my holdings have gains when I need to raise cash, I sell the one I judge to be least likely to produce higher gains in the near future and say a prayer of thanks for the gain. Somehow I thought the whole purpose of investing was to produce gains, and not having any losses to harvest was a good thing...

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NOT a TLH issue !

Post by celia » Mon Apr 10, 2017 1:13 am

Barefootgirl wrote:Since my income and expense situation for 2016 so closely tracked to 2015, I expected to come out the same, about even. Instead, for 2016, I end up owing about $1K.

I went back to analyze both years. It seems the only significant difference lies in the fact that I was able to take the full $3K capital loss carryover for 2015 and only about $1.4K for 2016...
Sorry to tell you this, but this does NOT look like the lack of losses is the reason your taxes increased. If your AGI increased by 1,600 (-3,000 to only -1,400 as losses), how would that cause an increase of $1,000 in taxes? That is a 66% tax bracket!!! :oops:

I suggest you compare the two tax returns and find another difference. Did you take any tax credits in 2015, but not 2016? Did you itemize? Did you carry-over a tax refund from 2014 to 2015, but not to 2016? Something else is the cause because even if you had $3K in losses, that wouldn't have brought your tax bill down $1,000. (Verify it in your tax software.)

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NOT a TLH issue !

Post by celia » Mon Apr 10, 2017 1:37 am

CurlyDave wrote:I am mystified.

Why would not having any losses to harvest be bad?

I understand the concept of a TLH, but if all of my holdings have gains when I need to raise cash, I sell the one I judge to be least likely to produce higher gains in the near future and say a prayer of thanks for the gain. Somehow I thought the whole purpose of investing was to produce gains, and not having any losses to harvest was a good thing...
Dave, I'm with you. You must be a better investor than most are. :D

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Re: How to TLH in Real LIfe

Post by SGM » Mon Apr 10, 2017 3:44 am

The only TLH I had in 2016 was from muni bond funds. It wasn't much and I bought different muni bond funds as a replacement.

I have not been able to deduct traditional IRAs for many years. However, I invested anyway to allow the funds to grow tax deferred. After 2010 I was able to convert these funds and I also learned about the back door Roth IRA. Since then I did a back door Roth every year for the two of us until retiring. I wasn't concerned about having other tIRA accounts because my completed plan included converting all tax deferred accounts to Roth accounts over several years. If I were concerned about the other tIRAs I would have rolled them into my solo 401k.

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Re: How to TLH in Real LIfe

Post by Longdog » Mon Apr 10, 2017 5:57 am

Barefootgirl wrote:I am maxing my 401K plus Catch Up contributions plus full HSA and an FSA....still need to get lower...
Increase charitable contributions! Better yet, donate highly appreciated securities and purchase an equivalent dollar amount in the stock portion of your portfolio.
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Re: How to TLH in Real LIfe

Post by Da5id » Mon Apr 10, 2017 7:12 am

Barefootgirl wrote: I read about TLH in theory, but not much about the real application.

It's not that I didn't think about it during the year. It's just that every time I had a spare moment to look into I got bogged down in the 30,40,50+ (?) page TLH for Dummies thread. I thought about putting the taxable funds under the control of a robo service, since as I recall, that's one of the primary benefits....and well, over the years, I have slowly divested myself of stocks and mostly own just mutual funds now.

If anyone has a relatively painless, straightforward method they use, would love to hear it. Seems like every time the market dipped in 2016, I was heading into a meeting...work often gets in the way of personal finance :?
I'm not a pro at TLH, but it isn't obvious that you had losses to realize from your post? Markets have been generally up, so perhaps no great TLH opportunities existed in your portfolio, depending on when you bought lots of whatever you hold in your taxable account?

My TLH is a no doubt rather primitive. My taxable accounts are set to "specific share identification". I keep an eye on lots every week or so (or when there is a big downturn) in Quicken. If there is a significant amount (say $1000) of loss in one or more lots of a mutual fund, I sell those lots and buy a partner. I use Vanguard Total Bond and Vanguard Intermediate term bond as my bond TLH partners, and Total Stock/Index 500 as my stock ones (I consider this good enough, YMMV). Don't currently have international in taxable, though I no doubt should, so not sure what the partner would be there. I have dividend reinvesting turned off. When there are dividends, if there don't appear to be TLH opportunities I use them to purchase funds and nudge myself towards my asset allocation.

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Re: How to TLH in Real LIfe

Post by The Wizard » Mon Apr 10, 2017 7:33 am

CurlyDave wrote:I am mystified.

Why would not having any losses to harvest be bad?

I understand the concept of a TLH, but if all of my holdings have gains when I need to raise cash, I sell the one I judge to be least likely to produce higher gains in the near future and say a prayer of thanks for the gain. Somehow I thought the whole purpose of investing was to produce gains, and not having any losses to harvest was a good thing...
Yes, gains are more fun than losses. So if we could get the S&P 500 to go up by a fraction of a percent month after month, we'd be all set. But that's not reality.

Furthermore, it helps if you are buying new lots of your taxable account fund(s) month after month.
I just bought a chunk of TSM a week ago. I'm more likely to see a loss in that lot than in one I might have bought three years ago when the market was lower...
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Re: How to TLH in Real LIfe

Post by grabiner » Thu Apr 13, 2017 9:04 pm

livesoft wrote:
cooky monster wrote: You have to consider the cost of transaction fees and bid/ask spreads as something that has to be overcome for a TLH transaction to be worth it.
While it is true that one should consider the cost of transaction fees and bid/ask spreads, the reality is that one should have transaction fees of zero and the bid/ask spread can work in your favor or not even exist (if you use mutual funds).
I have done a lot of tax loss harvesting in VSS (FTSE All-World Ex-US Small-Cap), which does have transaction costs. I expect to lose about 0.10% to the spread when I trade, and half an hour of my time in order to minimize that loss. Therefore, I won't normally harvest a loss there unless it is 10% (which is a loss of about $1000 on 100 shares). In mutual funds, I may harvest at 5% losses.
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