Tax loss harvesting and avoiding C.G. distributions

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PatrickS
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Joined: Sat Feb 24, 2007 6:38 pm
Location: San Diego

Tax loss harvesting and avoiding C.G. distributions

Post by PatrickS »

I'm planning to do some swaps out of my current holdings into a similar overall asset allocation with other funds) near year's-end to capture some losses.

There had to be a lot of appreciated stock sold to meet redemptions this year, so I expect the capital gains distributions to be fairly large. Is anyone considering a transfer to cash for 1-2 days (to avoid being in for the distributions) followed by transfer to similar class funds to both capture losses and avoid capital gains distributions? Other than the risk of missing one of those vaunted peak up days by being out for a couple of days, is there anything wrong with this thinking?
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grabiner
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Re: Tax loss harvesting and avoiding C.G. distributions

Post by grabiner »

PatrickS wrote:I'm planning to do some swaps out of my current holdings into a similar overall asset allocation with other funds) near year's-end to capture some losses.

There had to be a lot of appreciated stock sold to meet redemptions this year, so I expect the capital gains distributions to be fairly large. Is anyone considering a transfer to cash for 1-2 days (to avoid being in for the distributions) followed by transfer to similar class funds to both capture losses and avoid capital gains distributions? Other than the risk of missing one of those vaunted peak up days by being out for a couple of days, is there anything wrong with this thinking?
There's no point in doing this. If your fund distributes $2 a share in capital gains, its value will drop by $2, so you will have $2 more in capital losses when you sell, and that will cancel out the gains.
Wiki David Grabiner
kaneohe
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Post by kaneohe »

Still seems like it could be useful,though, if timing is important.
E.g. if you didn't qualify for stimulus rebate last yr, you get another chance this yr provided AGI is not too high. Pushing the gains to a future yr could be useful here.
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Taylor Larimore
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Avoid the distribution

Post by Taylor Larimore »

Hi Patrick:

It is usually better to sell before a distribution
and buy after a distribution. This article explains:

http://www.kiplinger.com/features/archi ... taxes.html

Best wishes.
Taylor
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grabiner
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Post by grabiner »

kaneohe wrote:Still seems like it could be useful,though, if timing is important.
E.g. if you didn't qualify for stimulus rebate last yr, you get another chance this yr provided AGI is not too high. Pushing the gains to a future yr could be useful here.
Pushing gains to a future year might be useful, but that isn't what happens in this strategy; if you receive the gain distribution, you take an equal loss which cancels it out.

If the distribution is a dividend rather than a capital gain, it is better to sell before the distribution. If you sell just after the fund pays a $1000 dividend, you'll have an extra $1000 capital loss, but you won't be able to deduct that capital loss for several years since you already have a lot of other losses, and you will pay tax on the dividend.
Wiki David Grabiner
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LGRZEMKOWSKI
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Post by LGRZEMKOWSKI »

I just did some TLH and I am not concerned with CG dist. because I have harvested so many losses I don't have to worry for the next 10 years :( .

I do have a question about what to do in the next 30 days to replace TSM. If you compare graphs of TSM, VLACX (LG CAP Index) and VFINX (500 Index) for 1, 2, 3 and 4 years you can not tell the difference they all just lay in almost a single line. So it doesn't seem to make any difference.

Any comments?

Larry G
kaneohe
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Post by kaneohe »

grabiner wrote:
kaneohe wrote:Still seems like it could be useful,though, if timing is important.
E.g. if you didn't qualify for stimulus rebate last yr, you get another chance this yr provided AGI is not too high. Pushing the gains to a future yr could be useful here.
Pushing gains to a future year might be useful, but that isn't what happens in this strategy; if you receive the gain distribution, you take an equal loss which cancels it out.

If the distribution is a dividend rather than a capital gain, it is better to sell before the distribution. If you sell just after the fund pays a $1000 dividend, you'll have an extra $1000 capital loss, but you won't be able to deduct that capital loss for several years since you already have a lot of other losses, and you will pay tax on the dividend.
G---thanks for taking the time to correct me. My intuition is not very good but after taking more time to actually think about it, I realize you are correct. I might still do the sale before the distribution to avoid the dividend part but that would be a much smaller part than the CG for TLH
selected stocks.
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