Anyone try to tax loss harvest and fail?

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Messy_Orchid_51
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Joined: Sun Apr 03, 2016 9:47 pm

Anyone try to tax loss harvest and fail?

Post by Messy_Orchid_51 » Wed Aug 15, 2018 10:07 pm

As I understand, when you buy, sell or exchange mutual funds you will get the closing price of that day or if the order is put in after 4pm EST, the next business days closing price.

Has anyone tried to tax loss harvest (TLH) relatively small amounts and had the fund close at the end of the day or the next business day with a significant rally resulting in short term capital gains as opposed to losses?

This question sort of boils down to tax loss harvesting bands.

Let's say I set a threshold to TLH for any losses >= $500 into a TLH partner (something similar but not substantially identical) and then in the future to TLH back into the original holding (after a period of time sufficient to not have a wash sale) for any losses at all >-$0.

Would it not be conceivable I put in an order to TLH a fund down 2% today only to have it rally tomorrow and instead lock in gain? Is TLH better with ETF versions?

Thanks!

PFInterest
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Re: Anyone try to tax loss harvest and fail?

Post by PFInterest » Wed Aug 15, 2018 10:10 pm

I haven't. But then you are taking about small losses and gains. I usually pull the trigger around 100.
Yes ETFs make it easier.

ResearchMed
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Re: Anyone try to tax loss harvest and fail?

Post by ResearchMed » Wed Aug 15, 2018 10:11 pm

Messy_Orchid_51 wrote:
Wed Aug 15, 2018 10:07 pm
As I understand, when you buy, sell or exchange mutual funds you will get the closing price of that day or if the order is put in after 4pm EST, the next business days closing price.

Has anyone tried to tax loss harvest (TLH) relatively small amounts and had the fund close at the end of the day or the next business day with a significant rally resulting in short term capital gains as opposed to losses?

This question sort of boils down to tax loss harvesting bands.

Let's say I set a threshold to TLH for any losses >= $500 into a TLH partner (something similar but not substantially identical) and then in the future to TLH back into the original holding (after a period of time sufficient to not have a wash sale) for any losses at all >-$0.

Would it not be conceivable I put in an order to TLH a fund down 2% today only to have it rally tomorrow and instead lock in gain? Is TLH better with ETF versions?

Thanks!
Why would you place the order a day early, rather that see what the market is doing, IF you are "close"?

For TLH when there is a significant loss, it's unlikely that a regular market blip would switch that to a gain.
(If it did, that would be quite some gain, and wouldn't that be nice for other holdings? :happy )

RM
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AlohaJoe
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Re: Anyone try to tax loss harvest and fail?

Post by AlohaJoe » Wed Aug 15, 2018 10:15 pm

Messy_Orchid_51 wrote:
Wed Aug 15, 2018 10:07 pm
Would it not be conceivable I put in an order to TLH a fund down 2% today only to have it rally tomorrow and instead lock in gain? Is TLH better with ETF versions?
Sure, it is conceivable. In practice I haven't found it to be much of an issue. Sure, it is better with ETFs. It also isn't that hard to look at an equivalent ETF and know that it has rallied.

I mean for the most obvious case, let's say you own VTSMX (the Vanguard TSM mutual fund). You can look at VTI (the Vanguard TSM ETF) at 3:50pm and see if it has rallied.

It usually isn't impossible to find a closely equivalent ETF. Let's say you own VWEHX (the Vanguard High-Yield Corporate fund) and there's no equivalent Vanguard ETF. It's not even an index fund. But there are lots of other high-yield ETFs, so you can look at iShares HYG and have a pretty decent idea whether Vanguard's VWEHX has suddenly jumped +5% since lunch time.

Messy_Orchid_51
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Re: Anyone try to tax loss harvest and fail?

Post by Messy_Orchid_51 » Wed Aug 15, 2018 10:19 pm

I don't really know how to see what the market is doing during a given day of trading and tend to execute my (very infrequent) transactions after hours which always gets me the next days closing price.

True, an unexpected gain following a significant loss would be nice for both the fund and the TLH partner but now you have locked in short term capital gains instead of TLH which defeats the purpose of making an exchange at all.

Messy_Orchid_51
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Re: Anyone try to tax loss harvest and fail?

Post by Messy_Orchid_51 » Wed Aug 15, 2018 10:21 pm

Ah ha! What AlohaJoe said about checking an equivalent ETF makes sense. Thanks

daveydoo
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Re: Anyone try to tax loss harvest and fail?

Post by daveydoo » Wed Aug 15, 2018 11:16 pm

PFInterest wrote:
Wed Aug 15, 2018 10:10 pm
Yes ETFs make it easier.
+1. You can pull the trigger whenever you want. In my experience with these TLH things, there can be a lot of movement in the closing hours of a session. Since I'm usually already in the "preferred" ETF and since I may get stuck in the slightly-less-preferred TLH partner (or partners) for a while, it's nice to know the whole exercise was worthwhile.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

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House Blend
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Re: Anyone try to tax loss harvest and fail?

Post by House Blend » Thu Aug 16, 2018 10:15 am

Messy_Orchid_51 wrote:
Wed Aug 15, 2018 10:21 pm
Ah ha! What AlohaJoe said about checking an equivalent ETF makes sense. Thanks
Right. If you are a mutual fund investor but can monitor an ETF that is similar to your fund, and wait until ~3pm, you can pretty much know whether to pull the trigger on your loss.

If the issue is that you don't have the time or access (e.g., work requirements) to monitor an ETF price movement while the market is open[*], then you have to take your chances, and make your trading decisions while the market is closed, or on your lunch break. An average loss of 2%/share in your stock fund might not be worth it in that case. YMMV.

[*] This is one reason why some prefer to use mutual funds over ETFs.

aristotelian
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Re: Anyone try to tax loss harvest and fail?

Post by aristotelian » Thu Aug 16, 2018 10:21 am

You can always check the market near closing time and then place or cancel your order.

ResearchMed
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Re: Anyone try to tax loss harvest and fail?

Post by ResearchMed » Thu Aug 16, 2018 10:31 am

aristotelian wrote:
Thu Aug 16, 2018 10:21 am
You can always check the market near closing time and then place or cancel your order.
If you are placing mutual fund orders at Vanguard, no cancellations allowed.

RM
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deltaneutral83
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Re: Anyone try to tax loss harvest and fail?

Post by deltaneutral83 » Thu Aug 16, 2018 10:45 am

I wouldn't think most people bother with TLH over being down $500 in a taxable account. That's a lot of work to keep $500 of income off the books. I guess if you're equities total 7 figures you probably aren't worried about a TLH-ing a $3k loss either in a taxable account.

Goal33
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Re: Anyone try to tax loss harvest and fail?

Post by Goal33 » Thu Aug 16, 2018 12:31 pm

deltaneutral83 wrote:
Thu Aug 16, 2018 10:45 am
I wouldn't think most people bother with TLH over being down $500 in a taxable account. That's a lot of work to keep $500 of income off the books. I guess if you're equities total 7 figures you probably aren't worried about a TLH-ing a $3k loss either in a taxable account.
If your equities are in the 7 figures you probably only need to tax loss harvest a couple times to have enough deductions for life. Probably worth it I think.
A man with one watch always knows what time it is; a man with two watches is never sure.

deltaneutral83
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Re: Anyone try to tax loss harvest and fail?

Post by deltaneutral83 » Thu Aug 16, 2018 1:31 pm

Goal33 wrote:
Thu Aug 16, 2018 12:31 pm
deltaneutral83 wrote:
Thu Aug 16, 2018 10:45 am
I wouldn't think most people bother with TLH over being down $500 in a taxable account. That's a lot of work to keep $500 of income off the books. I guess if you're equities total 7 figures you probably aren't worried about a TLH-ing a $3k loss either in a taxable account.
If your equities are in the 7 figures you probably only need to tax loss harvest a couple times to have enough deductions for life. Probably worth it I think.
I should have rephrased, I meant more along the lines of a 7 figure portfolio total, not 7 figure loss. At some point it can't be worth ones time to make the moves necessary to TLH, and I imagine most people who even have taxable account(s) (meaning they max out all others) wouldn't find $500 in losses worthwhile to TLH. I find it noteworthy that while $3,000 is the limit you can deduct a year personally on your return, that number could always be changed so I'd never pass up an opportunity to TLH. Even if you TLH a million dollar loss(es), if you had 10-15 years before touching it you'd probably have a good chance to exhaust the carry forward loss when and if you do withdrawal/redeem.

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