Tax Loss Harvest Total Bond Market Fund (VBTLX)

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JohnT
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Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by JohnT » Thu Feb 08, 2018 7:02 pm

I have about $5000 LT Loss in VBTLX.

Should I tax loss harvest now? OR should I wait to tax loss harvest, anticipating that the fund will (???) likely go lower? OR should I not tax loss harvest "ever" and stay the course because this is a "forever" holding?

If I tax loss harvest, what would be a reasonable "substitute" fund until I am allowed to buy back in? OR, should I stay out of a substitute fund until I am allowed to buy back in?

I get TLH-ing with Total Stock Market Index, but am not sure I get TLH-ing with Total Bond Market.

Anything else I should be mindful of in thinking through this scenario?

Thank you.

livesoft
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by livesoft » Thu Feb 08, 2018 7:43 pm

You should definitely TLH now. If your replacement fund drops, then TLH it, too.

Substitute fund? That depends on what else is going on in your portfolio. Normally, one would not have VBTLX in a taxable account and certainly not the amount that you have to create a $5,000 loss. So I don't think you are normal.
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iceport
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by iceport » Thu Feb 08, 2018 8:06 pm

An excellent substitute fund could be Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX), assuming you have not purchased shares of that in the same account or in an IRA within the last 30 days. It performs similarly but tracks a different index, so it is not substantially identical.

As far as being a "forever" fund, the nice thing about an IT bond fund is that its return comes primarily from dividends, not share price appreciation — especially in a rising interest rate environment. So it's unlikely that you will find yourself "stuck" in the replacement fund, sitting on large unrealized capital gains that would be tax prohibitive to sell beyond the 30 day wash sale period. If the replacement fund goes down further, all the better. You can then round-trip back into Total Bond Market and book a short term loss.

I prefer to use a substitute fund because it's so easy to do and you do not need to get out of the market. An IT bond fund is not as volatile as an equity fund, however, so I wouldn't be as opposed to sitting out of the IT bond market for 30 days. Still, unless you own a substantially identical holding to the replacement fund somewhere in your portfolio, it's simple enough to use a replacement.

livesoft raised the bigger question: Is it advantageous for you to hold the total bond market index fund in a taxable account? Are you in retirement and spending the dividends?
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John Laurens
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by John Laurens » Thu Feb 08, 2018 8:09 pm

livesoft wrote:
Thu Feb 08, 2018 7:43 pm
You should definitely TLH now. If your replacement fund drops, then TLH it, too.

Substitute fund? That depends on what else is going on in your portfolio. Normally, one would not have VBTLX in a taxable account and certainly not the amount that you have to create a $5,000 loss. So I don't think you are normal.
OP,

I assume you are 100% bonds in your 401k/traditional IRA and are in 25% or less tax bracket? If so, having 5k in taxable bond losses could be very normal. So to help, I would use Vanguard’s Intermediate-Term bond Index.

Regards,
John

Roothy
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by Roothy » Tue May 15, 2018 2:28 pm

I'm about to do this for my mom's taxable acct, and I have a question.

The bulk of her shares of VBTLX were purchased before 2012. Every lot since that date shows a loss. I have asked my mom if she happens to know the actual cost basis for the shares purchased before 2012 (after that). I'm pretty sure the answer is going to be "no."

What do I do in that case? How do we know whether there is a loss or not? How do we report it to the IRS?

I'm so grateful brokerages now keep track!

livesoft
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by livesoft » Tue May 15, 2018 2:53 pm

What is the Cost Basis Method for these pre-2012 shares? And the post-2011 shares? Which brokerage holds these shares?
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Roothy
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by Roothy » Tue May 15, 2018 3:14 pm

Cost-basis method for pre-2012 is the default, which is "average" method. The account was opened in Dec. 2010, so the vast bulk of the fund (about $101,000) was bought all at once then. These "noncovered" shares are now worth about $98,000. The balance of the account (that is, another $23,000, all "covered" shares) has mostly been dividend reinvestments since then. All of these post-2012 lots are now spec-ID (because I changed it when I took over managing her account a few months ago.) {edited these numbers because I got a couple of them backwards}

Vanguard tells me that the pre-2012 shares have a tax loss of about $3500 (with the post-2012 shares having a loss of about another $1000). But I can't see the individual lots in the pre-2012 shares, and it's my understanding that they won't report these losses to the IRS. So my guess is that I need to report it myself come tax-time? While the post-2012 ("covered") shares' loss *will* be reported? My mom definitely did not keep track of how much she paid for the pre-2012 shares, but again she probably bought almost all of them all at once in Dec. 2010, when she moved her money from USAA to Vanguard.

Thanks, livesoft! I did try to search around for answers to this, which is how I learned what covered vs noncovered shares are! But I'm still very fuzzy on the details.

livesoft
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by livesoft » Tue May 15, 2018 5:30 pm

Since the pre-2012 shares are average cost, then you know the cost basis. You don't need to know anything about the individual lots since you would be selling all those pre-2012 shares. The 1099B will be legit. It will probably import into tax software with "Date Acquired" of "Various Long", so that's legit, too.

Anyways, doesn't read like you have anything to worry about.
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Roothy
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Re: Tax Loss Harvest Total Bond Market Fund (VBTLX)

Post by Roothy » Wed May 16, 2018 7:56 am

Fantastic. As ever, livesoft, thanks for the advice and hand holding.

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