When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

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JustinR
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When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by JustinR » Wed Oct 31, 2018 7:16 pm

What is your personal rule or threshold for tax loss harvesting?

When your losses across all lots total $1000? $3000? $500?

PFInterest
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Re: When do YOU pull the trigger for TLH?

Post by PFInterest » Wed Oct 31, 2018 8:10 pm

i buy monthly. if there is a loss, i take it.

GoldenFinch
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Re: When do YOU pull the trigger for TLH?

Post by GoldenFinch » Wed Oct 31, 2018 8:31 pm

Somewhere around 4,000. At least that is what I have done in the past.

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Re: When do YOU pull the trigger for TLH?

Post by panhead » Wed Oct 31, 2018 8:56 pm

JustinR wrote:
Wed Oct 31, 2018 7:16 pm
What is your personal rule or threshold for tax loss harvesting?

When your losses across all lots total $1000? $3000? $500?
Just starting to get into the TLH frame of mind, but what I am thinking is if I can TLH against my current income in a a fairly high bracket (say 32% or 35%, etc) then I will try to find $3000 in losses to do that. If my funds have any capital gain distributions I will also try to find TLH opportunities to offset these. I am not a big fan of using it to generate carryover losses as I don't know what my income will look like next year, or the years after.

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eye.surgeon
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Re: When do YOU pull the trigger for TLH?

Post by eye.surgeon » Wed Oct 31, 2018 10:05 pm

How much is 10 minutes of your time worth? I've TLH'ed $300. Why not. I've worked a lot harder for 10 minutes for a lot less.
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rkhusky
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Re: When do YOU pull the trigger for TLH?

Post by rkhusky » Thu Nov 01, 2018 6:51 am

eye.surgeon wrote:
Wed Oct 31, 2018 10:05 pm
How much is 10 minutes of your time worth? I've TLH'ed $300. Why not. I've worked a lot harder for 10 minutes for a lot less.
And if the replacement fund drops by $300 the following week? And the replacement for that drops $300 the following week?

I worry about my portfolio getting cluttered with a lot of non-substantially identical funds.

My threshold is $500, if I can move to an existing fund, and $2000, if I have to invest in a new fund.

I suppose one could avoid new funds by moving to a money market for 30 days.

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car733
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Re: When do YOU pull the trigger for TLH?

Post by car733 » Thu Nov 01, 2018 1:53 pm

eye.surgeon wrote:
Wed Oct 31, 2018 10:05 pm
How much is 10 minutes of your time worth? I've TLH'ed $300. Why not. I've worked a lot harder for 10 minutes for a lot less.
+1.

JustinR
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Re: When do YOU pull the trigger for TLH?

Post by JustinR » Thu Nov 01, 2018 1:53 pm

rkhusky wrote:
Thu Nov 01, 2018 6:51 am
eye.surgeon wrote:
Wed Oct 31, 2018 10:05 pm
How much is 10 minutes of your time worth? I've TLH'ed $300. Why not. I've worked a lot harder for 10 minutes for a lot less.
And if the replacement fund drops by $300 the following week? And the replacement for that drops $300 the following week?

I worry about my portfolio getting cluttered with a lot of non-substantially identical funds.

My threshold is $500, if I can move to an existing fund, and $2000, if I have to invest in a new fund.

I suppose one could avoid new funds by moving to a money market for 30 days.
If it keeps dropping, couldn't you just wait 31 days and TLH back to the original fund? So to avoid clutter just have one replacement fund and always wait 31 days between harvests.

rghost
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by rghost » Thu Nov 01, 2018 2:04 pm

10 minutes of time? How do you do this? What do you use to track things? I lost $12-15K in an account outside of Vangaurd, but also have gains in Vangaurd. Do you use an excel spreadsheet and just give it to your CPA?

rkhusky
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Re: When do YOU pull the trigger for TLH?

Post by rkhusky » Thu Nov 01, 2018 3:33 pm

JustinR wrote:
Thu Nov 01, 2018 1:53 pm
If it keeps dropping, couldn't you just wait 31 days and TLH back to the original fund? So to avoid clutter just have one replacement fund and always wait 31 days between harvests.
You could, but then you might not want to TLH for only $300, but wait for something bigger. Suppose you TLH for $300 and then the next week the replacement drops by $3000? Do you TLH again or wait for 3 more weeks and potentially lose the $3000 loss? Or you could TLH the $3000 back into the original fund and have a $300 wash sale for the original loss, which might not be so bad, considering you are booking a $3000 loss.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Thu Nov 01, 2018 5:07 pm

with the market being so great for the last 9 years where are these loses coming from. Someone with the 3 fund are seeing that many loses to TLH. Also, with most here I believe investing in work and the 401k in the growing phase, that many people have 18k in 401k plus 5k in Roth and then more to invest in taxable account. I would then ask what is your debt.

PFInterest
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by PFInterest » Fri Nov 02, 2018 6:08 am

indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
with the market being so great for the last 9 years where are these loses coming from. Someone with the 3 fund are seeing that many loses to TLH. Also, with most here I believe investing in work and the 401k in the growing phase, that many people have 18k in 401k plus 5k in Roth and then more to invest in taxable account. I would then ask what is your debt.
Have you seen the news this year? How many 10% drops did we have?

No debt.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by diy60 » Fri Nov 02, 2018 7:31 am

indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
Someone with the 3 fund are seeing that many loses to TLH.
Yes. Last week YTD: intl down -10 to -12%, bond down -1 to -3%. If you invested or rebalanced throughout the year in taxable then almost certainly there were some losses.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Nowizard » Fri Nov 02, 2018 7:40 am

How does this interact with Buy and Hold? For example, in the past week, there have been significant down and significant up days in the market, but our portfolio is about where it was before the down days since we made no moves. If we had sold, we could have TLHed, but would not have had the positive effects of the "bounce" unless we had also made a purchase of a similar security. Is it equally important to also purchase an equivalent, but allowable, security when TLHing or does it represent a more permanent change in asset allocation going forward?

Tim

retiringwhen
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by retiringwhen » Fri Nov 02, 2018 8:24 am

indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
with the market being so great for the last 9 years where are these loses coming from. Someone with the 3 fund are seeing that many loses to TLH. Also, with most here I believe investing in work and the 401k in the growing phase, that many people have 18k in 401k plus 5k in Roth and then more to invest in taxable account. I would then ask what is your debt.
Had a windfall and put it in the market during DEC-FEB last winter as the funds became available.

2018 has provided lots of opportunities to TLH that investment.....

You know those studies that show that lump sum vs. DCA wins 2/3 of the time? Well our house was on the losing side of that gamble. No complaining, just making lemonade.

To the OP's question, we've normally only TLH'd when it was greater than $1,000.

This year has made the clutter issue almost moot as at 31 days the alternative fund was down anyway...

Greenman72
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Greenman72 » Fri Nov 02, 2018 8:45 am

Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.

retiringwhen
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by retiringwhen » Fri Nov 02, 2018 9:31 am

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
I like the $1,000 reduction in net tax costs on my Federal return every year that I have $3,000 in net losses derived from TLH...... It is yet another Tax-deferral strategy that most folks would consider a good thing.

The cost-basis step-up is a positive if you think there is even a chance of holding until death, so probably net positive value but the current tax benefits can't be minimized. Some folks just TLH to cover other realized gains this year as well and that is also a good tax-deferral strategy.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by retiringwhen » Fri Nov 02, 2018 9:41 am

Nowizard wrote:
Fri Nov 02, 2018 7:40 am
How does this interact with Buy and Hold? For example, in the past week, there have been significant down and significant up days in the market, but our portfolio is about where it was before the down days since we made no moves. If we had sold, we could have TLHed, but would not have had the positive effects of the "bounce" unless we had also made a purchase of a similar security. Is it equally important to also purchase an equivalent, but allowable, security when TLHing or does it represent a more permanent change in asset allocation going forward?

Tim
I wouldn't use TLH'ing to change your AA or rebalance unless it is truly time to do one of those. All of my TLH actions have been to keep funds in the same basic asset class of the 3-fund portfolio (US Stocks for US Stocks, etc.)

So effectively it is a buy and hold on the asset class which is the real key.

There are plenty of different options for different index funds to choose from that keep you in the same universe. For Example VTSAX with VFIAX (S&P500) or VLCAX (CRSP Large Cap index) is a very reasonable choice and will not run afoul of any known wash rules. I am not afraid to hold either of those for the duration if necessary (maybe fill out with the small cap completion funds if it ends up being a large part of the portfolio.)

For small amounts, I know some folks just sell into settlement fund for 31 days, and if you are talking less than 1-2% of your portfolio that is probably okay in the larger scheme of things, but it would "feel" like market timing to me in my mind and I may get jittery about going back in or timing the return. My experience in the past has driven me to remove those temptations in as many places as possible as they cause stress and doubt. Keeping to the IPS/AA as closely as possible gives me the way to remove that stress.

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House Blend
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Re: When do YOU pull the trigger for TLH?

Post by House Blend » Fri Nov 02, 2018 9:59 am

JustinR wrote:
Thu Nov 01, 2018 1:53 pm
rkhusky wrote:
Thu Nov 01, 2018 6:51 am
And if the replacement fund drops by $300 the following week? And the replacement for that drops $300 the following week?

I worry about my portfolio getting cluttered with a lot of non-substantially identical funds.

My threshold is $500, if I can move to an existing fund, and $2000, if I have to invest in a new fund.

I suppose one could avoid new funds by moving to a money market for 30 days.
If it keeps dropping, couldn't you just wait 31 days and TLH back to the original fund? So to avoid clutter just have one replacement fund and always wait 31 days between harvests.
Shrug. That's what I do. I own TLH *pairs*, and generally am indifferent to whether I have more of Fund A or Fund B from each pair.

If (large enough) losses are available in Fund A, I harvest from A to B.
For the next 30 days afterwards,

(i) if I have cash and need to buy more of A/B, I buy B.
(ii) if the price continues to drop, and more losses become available in A, I *may* do more harvesting from A to B (and reset the wash sale timer).

You might not want to do (ii) if at that moment, you own say 10,000 new shares of B showing a loss of $1/share, and 1,000 shares of A with an unrealized loss of $0.50. In any case only after the wash sale timer has expired would I harvest losses from B to A.

You can invent all sorts of market behavior that will result in losses going un-harvested with this strategy. I'm ok with that.

One extra bit that can help with this approach is that when you are buying more of A/B, and have a choice, choose the one that already has the tax lots with the highest cost shares. That will help concentrate your losses in one fund the next time there is an opportunity to TLH.
Nowizard wrote:
Fri Nov 02, 2018 7:40 am
How does this interact with Buy and Hold?
That's why I use pairs. Also, as far as maintaining portfolio AA goes, see item (i) above.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by jadd806 » Fri Nov 02, 2018 10:01 am

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Doesn't it also "work" if one ends up in the 0% long-term capital gains bracket when selling? For 2018 this will be $38,600 taxable income for single filers or $77,200 for joint.

Chip
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Chip » Fri Nov 02, 2018 10:03 am

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
If you think harder about it, TLH gives you an ordinary income deduction now (or spread over some years), vs. an increased capital gain in the future. Tax rate arbitrage plus time value of money. What's not to like? If you don't think it's important, how about giving me $660 (.22*3000) now and I'll give you back $450 (.15*3000) or $0 (0*3000) in 25 years?

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by JediMisty » Fri Nov 02, 2018 10:38 am

Of consideration for folks whose medical insurance is not provided by an employer or Medicare is qualifying for ACA subsidies. So after estimating ones MAGI close to the end of the year, this year might be the time to harvest those loses, or wait until next year if this year's MAGI will be low enough to qualify for the subsidies. For the self employed with variable income, this is a lot of math, but worth it.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by livesoft » Fri Nov 02, 2018 10:45 am

I have no hard and fast rule. Why should there even be a rule?

That written, I haven't invested new money in taxable in a while because I am retired and I do not reinvest dividends, but choose to spend them instead. So no TLH opportunities for me in quite a while.

However, I used to harvest all losses before they became long-term losses and any losses before the end of the tax year. That way, I avoided having long-term losses and every year started with no red showing in my taxable accounts: everything was black.

Then outside of the above, I would look to TLH on Really Bad Days.

So while I didn't use a specific percentage or dollar amount to TLH, the amounts were typically above $300 and 3%, but not always.
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Greenman72
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Greenman72 » Fri Nov 02, 2018 11:12 am

Chip wrote:
Fri Nov 02, 2018 10:03 am
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the longi run is if you hold onto your securities until you die and get a basis step-up.
If you think harder about it, TLH gives you an ordinary income deduction now (or spread over some years), vs. an increased capital gain in the future. Tax rate arbitrage plus time value of money. What's not to like? If you don't think it's important, how about giving me $660 (.22*3000) now and I'll give you back $450 (.15*3000) or $0 (0*3000) in 25 years?
Sounds like an awful lot of work to save $210 over the course of 25 years. That’s what....$8 a year? If everything works exactly as planned?

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by retiringwhen » Fri Nov 02, 2018 11:32 am

Greenman72 wrote:
Fri Nov 02, 2018 11:12 am

Sounds like an awful lot of work to save $210 over the course of 25 years. That’s what....$8 a year? If everything works exactly as planned?
Assuming your worst case, the future value of that $210 in 25 years is over $900 if you assume 6% annual return on the invested funds not paid in taxes.

If you consider the cost-basis step up (aka death) scenario, then it is worth over $2,500.

Now, if you can TLH to achieve the tax benefit for 10 years, you are looking at between $9,000 and $2,500 for a few minutes work. (10 years worth requires $30K in net tax loss harvesting.)

livesoft shared his strategy to live tax free in retirement and this trick was a part of it.

Assuming inflation is less than 6% you are coming out ahead anyway you look at it.

The only downside risk of this approach is that long-term capital gains tax rates are higher in the future. This scenario assumes the rates stay the same, if they go down the upside is between the numbers given above.

Chip
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Chip » Fri Nov 02, 2018 2:22 pm

Greenman72 wrote:
Fri Nov 02, 2018 11:12 am
Sounds like an awful lot of work to save $210 over the course of 25 years. That’s what....$8 a year? If everything works exactly as planned?
Nice try at framing it in the worst possible light. Note that you save $660 in taxes NOW. You will have to pay back the $450 in the future IF you sell. That should occur in retirement, if at all. I used the example of a 3k TLH, but the last time I did it was for 50k of losses.

If you think it's a lot of work you must not have ever done it. It takes a few mouse clicks. Maybe 10 minutes. I'm happy to get $660 for 10 minutes of work.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Fri Nov 02, 2018 3:26 pm

PFInterest wrote:
Fri Nov 02, 2018 6:08 am
indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
with the market being so great for the last 9 years where are these loses coming from. Someone with the 3 fund are seeing that many loses to TLH. Also, with most here I believe investing in work and the 401k in the growing phase, that many people have 18k in 401k plus 5k in Roth and then more to invest in taxable account. I would then ask what is your debt.
Have you seen the news this year? How many 10% drops did we have?

No debt.
I really don't watch the market that close. But my taxed account still shows I am positive. So no loss yet in the tax account. I am not sure how people get loses unless they are constantly trading.

indexonlyplease
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Fri Nov 02, 2018 3:28 pm

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Thats the point I was making after reading the link someone posted. Glad you cleared it up.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Fri Nov 02, 2018 3:31 pm

diy60 wrote:
Fri Nov 02, 2018 7:31 am
indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
Someone with the 3 fund are seeing that many loses to TLH.
Yes. Last week YTD: intl down -10 to -12%, bond down -1 to -3%. If you invested or rebalanced throughout the year in taxable then almost certainly there were some losses.
Why would someone spend that much time rebalancing and all the work trading. I thought the idea is the market will return to positive gains.. And like the link and other poster stated you are just kidding the larger capital gains down the road.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Fri Nov 02, 2018 3:33 pm

Chip wrote:
Fri Nov 02, 2018 2:22 pm
Greenman72 wrote:
Fri Nov 02, 2018 11:12 am
Sounds like an awful lot of work to save $210 over the course of 25 years. That’s what....$8 a year? If everything works exactly as planned?
Nice try at framing it in the worst possible light. Note that you save $660 in taxes NOW. You will have to pay back the $450 in the future IF you sell. That should occur in retirement, if at all. I used the example of a 3k TLH, but the last time I did it was for 50k of losses.

If you think it's a lot of work you must not have ever done it. It takes a few mouse clicks. Maybe 10 minutes. I'm happy to get $660 for 10 minutes of work.
Good point if you are making mistakes is investing and trading to much. But I thought the idea was to be a long term investor. 50k loss. you really need to check your investment stategy. Thats 16 years of TLH. Better not make any more mistakes.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by MotoTrojan » Fri Nov 02, 2018 3:37 pm

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Let’s assume you have $10M in equities and the market drops 50%; you harvest it. You’ll now save $3K in income taxes a year for life. You don’t think that the $1000+ you make a year from this, invested in equities, is something worth having and a longterm win? Even without a stepped up basis.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Fri Nov 02, 2018 3:46 pm

MotoTrojan wrote:
Fri Nov 02, 2018 3:37 pm
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Let’s assume you have $10M in equities and the market drops 50%; you harvest it. You’ll now save $3K in income taxes a year for life. You don’t think that the $1000+ you make a year from this, invested in equities, is something worth having and a longterm win? Even without a stepped up basis.
Who has 10 million???? How about making it real with people trading to much with only 10k. Are in debt and are not maxing out the 401l and Roth IRA. I did not realize so many weathly peple on this site. and I don;t mean 1-2 million.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by PFInterest » Fri Nov 02, 2018 4:51 pm

indexonlyplease wrote:
Fri Nov 02, 2018 3:26 pm

I really don't watch the market that close. But my taxed account still shows I am positive. So no loss yet in the tax account. I am not sure how people get loses unless they are constantly trading.
so you havent invested anything recently, thats all.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by remomnyc » Fri Nov 02, 2018 5:09 pm

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
It is unlikely that I will spend down my principal in my lifetime. The typical 4% SWR will usually leave lots of $ on the table, which will get a step up in basis upon death. In the meantime, I will be using my tax loss carry forwards against capital gains as I sell annually for cash flow.

P.S. My IPS says I TLH at $3k, but IRL, I haven't done it for less than $10k.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by MotoTrojan » Fri Nov 02, 2018 5:22 pm

indexonlyplease wrote:
Fri Nov 02, 2018 3:46 pm
MotoTrojan wrote:
Fri Nov 02, 2018 3:37 pm
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Let’s assume you have $10M in equities and the market drops 50%; you harvest it. You’ll now save $3K in income taxes a year for life. You don’t think that the $1000+ you make a year from this, invested in equities, is something worth having and a longterm win? Even without a stepped up basis.
Who has 10 million???? How about making it real with people trading to much with only 10k. Are in debt and are not maxing out the 401l and Roth IRA. I did not realize so many weathly peple on this site. and I don;t mean 1-2 million.
Frankly the less $ you have the more impact a $750-$1250 tax savings being invested will make in your retirement nest-egg, so that doesn't help your point.

Let's assume you have $10K in equities (most on here do) and the market drops 50%; you harvest it. Now you have an extra ~$1000-2000 in tax savings over 2 years which you can invest. Over 25 years that will not be insignificant for a "real" person, especially if it happens every few years.

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Artsdoctor
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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Artsdoctor » Fri Nov 02, 2018 5:37 pm

Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
To be sure, this is the traditional teaching: tax deferral.

In practice, though, there are many other advantages to tax-loss harvesting.

You mentioned one: stepped up basis on death. This is not an insignificant advantage still it applies to the surviving spouse; it's rare that both spouses die simultaneously.

As others have mentioned, you also have a $3,000 loss which reduces your personal income tax. Granted, if you are in a small marginal tax bracket, this could be limited. If you're not, then you save over $1,000 per year in federal tax and also whatever your marginal tax rate is in state tax (some states allow carryover losses, some do not).

There are some people who are philanthropically inclined. If so, you can easily transfer over those highly appreciated shares (those with the lowest cost basis from all that tax-loss harvesting) to a donor advised fund: you haven't delayed paying taxes on capital gains, you've eliminated them.

Lastly, the real estate deduction remains generous but for those in high cost of living areas, you can use all of those carryover losses to offset the gain on your primary residence. The sale of a residence occurs in one year and there's no way to really spread it out--so those capital gains can really affect your total tax significantly.

So you are right to question to utility of tax-loss harvesting, but you should also appreciate that many people have completely different investment and financial needs than you do.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by MP123 » Fri Nov 02, 2018 7:36 pm

jadd806 wrote:
Fri Nov 02, 2018 10:01 am
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Doesn't it also "work" if one ends up in the 0% long-term capital gains bracket when selling? For 2018 this will be $38,600 taxable income for single filers or $77,200 for joint.
Yes, exactly. TLH works great for people in high brackets now that expect to be in lower later.

Reducing your capital gains in the 20% cg bracket in exchange for paying them back later (due to lower cost basis) when you're in the 0% bracket seems like a good deal to me...

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Greenman72 » Fri Nov 02, 2018 10:34 pm

MotoTrojan wrote:
Fri Nov 02, 2018 3:37 pm
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
Let’s assume you have $10M in equities and the market drops 50%; you harvest it. You’ll now save $3K in income taxes a year for life. You don’t think that the $1000+ you make a year from this, invested in equities, is something worth having and a longterm win? Even without a stepped up basis.
Let’s assume I have $10m in equities and another $10m in fixed income and another $10m in alternative assets and a privately owned business.

$1,000 is a rounding error.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by JustinR » Sat Nov 03, 2018 3:06 am

retiringwhen wrote:
Fri Nov 02, 2018 11:32 am
Now, if you can TLH to achieve the tax benefit for 10 years, you are looking at between $9,000 and $2,500 for a few minutes work. (10 years worth requires $30K in net tax loss harvesting.)

livesoft shared his strategy to live tax free in retirement and this trick was a part of it.
Can you link me to this exact post?
House Blend wrote:
Fri Nov 02, 2018 9:59 am
One extra bit that can help with this approach is that when you are buying more of A/B, and have a choice, choose the one that already has the tax lots with the highest cost shares. That will help concentrate your losses in one fund the next time there is an opportunity to TLH.
Neat trick. Didn't even think of that. Thanks!

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Chip » Sat Nov 03, 2018 3:41 am

indexonlyplease wrote:
Fri Nov 02, 2018 3:33 pm
Good point if you are making mistakes is investing and trading to much. But I thought the idea was to be a long term investor. 50k loss. you really need to check your investment stategy. Thats 16 years of TLH. Better not make any more mistakes.
You need a better understanding of TLH. The proceeds from my TLH were immediately reinvested in similar index funds and thereafter recovered all of the losses. I haven't touched those positions since. In the meantime I've received a nice 3k deduction from ordinary income each year.

Markets fluctuate. Sometimes positions show losses. That's the market handing out some lemons. TLH is a way to make some lemonade out of them.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Chip » Sat Nov 03, 2018 4:51 am

Greenman72 wrote:
Fri Nov 02, 2018 10:34 pm
Let’s assume I have $10m in equities and another $10m in fixed income and another $10m in alternative assets and a privately owned business.

$1,000 is a rounding error.
Let's further assume you're walking out to your private jet and there's a $100 bill lying on the tarmac. Do you bother to bend over and pick it up? Because that's about the effort required to TLH.

You don't need 10m in equities to TLH 50k. In 2007-9 it only required an initial investment of 100k. :twisted:

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by MNS CA » Sat Nov 03, 2018 7:46 am

indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
with the market being so great for the last 9 years where are these loses coming from. Someone with the 3 fund are seeing that many loses to TLH. Also, with most here I believe investing in work and the 401k in the growing phase, that many people have 18k in 401k plus 5k in Roth and then more to invest in taxable account. I would then ask what is your debt.
If you've bought in 2018, especially in January or August, you probably have losses as of October.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Sat Nov 03, 2018 7:50 am

Chip wrote:
Sat Nov 03, 2018 4:51 am
Greenman72 wrote:
Fri Nov 02, 2018 10:34 pm
Let’s assume I have $10m in equities and another $10m in fixed income and another $10m in alternative assets and a privately owned business.

$1,000 is a rounding error.
Let's further assume you're walking out to your private jet and there's a $100 bill lying on the tarmac. Do you bother to bend over and pick it up? Because that's about the effort required to TLH.

You don't need 10m in equities to TLH 50k. In 2007-9 it only required an initial investment of 100k. :twisted:
I get what you are saying but what about when you seel the fund down the road and have large capital gains? Does this eat up the savings on taxes. Also, for someone retired and still in the same tax bracket 24% or higher.

Also, yes I guess I am still TLH the investment property I sold in the housing crash. I still claim 3k agains my taxes every year. I think I have 2 more years of the loses.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Sat Nov 03, 2018 7:52 am

JustinR wrote:
Sat Nov 03, 2018 3:06 am
retiringwhen wrote:
Fri Nov 02, 2018 11:32 am
Now, if you can TLH to achieve the tax benefit for 10 years, you are looking at between $9,000 and $2,500 for a few minutes work. (10 years worth requires $30K in net tax loss harvesting.)

livesoft shared his strategy to live tax free in retirement and this trick was a part of it.
Can you link me to this exact post?
House Blend wrote:
Fri Nov 02, 2018 9:59 am
One extra bit that can help with this approach is that when you are buying more of A/B, and have a choice, choose the one that already has the tax lots with the highest cost shares. That will help concentrate your losses in one fund the next time there is an opportunity to TLH.
Neat trick. Didn't even think of that. Thanks!
But does the no tax work for someone that retires and stays in the same tax bracket because of pension or because they want to maintain the same lifestyle. I would say 24% or higher tax bracket.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by Chip » Sat Nov 03, 2018 8:58 am

indexonlyplease wrote:
Sat Nov 03, 2018 7:50 am
I get what you are saying but what about when you seel the fund down the road and have large capital gains? Does this eat up the savings on taxes. Also, for someone retired and still in the same tax bracket 24% or higher.
If you sell you only pay extra capital gains taxes on the amount you TLH.

Take your example of a 24% bracket. That's a 15% long term capital gains bracket under current law. If you TLH 3k of losses now (again, buying back a similar fund) you will save $720 on your taxes this year (.24 * 3000). When you sell you will have to pay $450 of capital gains taxes on that 3k (3000 * .15). Note you will likely have gains in addition to the 3k resulting from TLH, but you would have had those gains even if you hadn't TLH'd.

So you put $720 in your pocket TODAY. You might have to "pay back" $450 some years from now. You may not have to pay it back at all. That's a good deal.

Now, this assumes that tax brackets don't change. They almost certainly will change but no one knows the direction and certainly not the magnitude.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Sat Nov 03, 2018 9:14 am

Chip wrote:
Sat Nov 03, 2018 8:58 am
indexonlyplease wrote:
Sat Nov 03, 2018 7:50 am
I get what you are saying but what about when you seel the fund down the road and have large capital gains? Does this eat up the savings on taxes. Also, for someone retired and still in the same tax bracket 24% or higher.
If you sell you only pay extra capital gains taxes on the amount you TLH.

Take your example of a 24% bracket. That's a 15% long term capital gains bracket under current law. If you TLH 3k of losses now (again, buying back a similar fund) you will save $720 on your taxes this year (.24 * 3000). When you sell you will have to pay $450 of capital gains taxes on that 3k (3000 * .15). Note you will likely have gains in addition to the 3k resulting from TLH, but you would have had those gains even if you hadn't TLH'd.

So you put $720 in your pocket TODAY. You might have to "pay back" $450 some years from now. You may not have to pay it back at all. That's a good deal.

Now, this assumes that tax brackets don't change. They almost certainly will change but no one knows the direction and certainly not the magnitude.
Now I understand better. I will have to keep this in mind when I see the account drop. My taxed account is in one fund and one lump some 2 years ago. So, I will have to wait for a large drop in the market then I will TLH. Also, you see I posted the losses from the investment property. I never considered this but it is TLH also I believe. I have to check with tax man, think 2 years left of that loss.

Thanks for being patient and expalaining.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by diy60 » Sat Nov 03, 2018 10:33 am

indexonlyplease wrote:
Fri Nov 02, 2018 3:31 pm
diy60 wrote:
Fri Nov 02, 2018 7:31 am
indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
Someone with the 3 fund are seeing that many loses to TLH.
Yes. Last week YTD: intl down -10 to -12%, bond down -1 to -3%. If you invested or rebalanced throughout the year in taxable then almost certainly there were some losses.
Why would someone spend that much time rebalancing and all the work trading. I thought the idea is the market will return to positive gains.. And like the link and other poster stated you are just kidding the larger capital gains down the road.
I'll share my personal experience with TLH this year that may help broaden your understanding.

I rec'd RSUs (restricted stock units) from my Megacorp employer, which vest on a predetermined schedule. Early this year a portion of those stock units vested, which is taxed as ordinary income. Since I don't want individual stocks, I immediately sold the company stock for no capital gains and invested the proceeds into an international equity index mutual fund per my investment policy. As of last week the fund was down about -10%, so I sold the mutual fund and immediately invested in a correlated international ETF. This is an ETF I already own so the purchase did not add any additional clutter. So now I get an immediate reduction in my taxable income, I am still invested in the market per my policy, and the taxes I may pay in the future if I liquidate this ETF position will be taxed at 15% vs my current marginal rate. The transactions took about 5 mins of my time.

If your point to my post was that it seems too many people do a lot of churning for the sake of TLH, I tend to agree with you. We see this frequently in our local BH chapter meeting. Young folks especially will come in and talk about their robo-type TLH investing platforms. They'll have literally hundreds of stock positions with an equally high number of tax lots. We strongly discourage this activity and try hard to point them towards simplicity.

Hope this helps, Good luck.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Sat Nov 03, 2018 11:10 am

diy60 wrote:
Sat Nov 03, 2018 10:33 am
indexonlyplease wrote:
Fri Nov 02, 2018 3:31 pm
diy60 wrote:
Fri Nov 02, 2018 7:31 am
indexonlyplease wrote:
Thu Nov 01, 2018 5:07 pm
Someone with the 3 fund are seeing that many loses to TLH.
Yes. Last week YTD: intl down -10 to -12%, bond down -1 to -3%. If you invested or rebalanced throughout the year in taxable then almost certainly there were some losses.
Why would someone spend that much time rebalancing and all the work trading. I thought the idea is the market will return to positive gains.. And like the link and other poster stated you are just kidding the larger capital gains down the road.
I'll share my personal experience with TLH this year that may help broaden your understanding.

I rec'd RSUs (restricted stock units) from my Megacorp employer, which vest on a predetermined schedule. Early this year a portion of those stock units vested, which is taxed as ordinary income. Since I don't want individual stocks, I immediately sold the company stock for no capital gains and invested the proceeds into an international equity index mutual fund per my investment policy. As of last week the fund was down about -10%, so I sold the mutual fund and immediately invested in a correlated international ETF. This is an ETF I already own so the purchase did not add any additional clutter. So now I get an immediate reduction in my taxable income, I am still invested in the market per my policy, and the taxes I may pay in the future if I liquidate this ETF position will be taxed at 15% vs my current marginal rate. The transactions took about 5 mins of my time.

If your point to my post was that it seems too many people do a lot of churning for the sake of TLH, I tend to agree with you. We see this frequently in our local BH chapter meeting. Young folks especially will come in and talk about their robo-type TLH investing platforms. They'll have literally hundreds of stock positions with an equally high number of tax lots. We strongly discourage this activity and try hard to point them towards simplicity.

Hope this helps, Good luck.
It does, Thanks

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by drzzzzz » Sat Nov 03, 2018 12:35 pm

The market has been going up steadily for the past few years so tax losses are fewer unless you were investing in taxable earlier this year and have taken advantage of the recent drop or are harvesting losses in bond accounts - and who knows at this point whether the market will go up, go down, or be even from here for the remainder of the year.

The other point that a poster made about tax loss harvesting was at "what dollar amount or threshold" - I would suggest that really depends on the individual and their assets since it seems like a lot of work to take it for $100 and to have to buy and sell other funds to take advantage of that loss; and then do you do it all over again a week later for another $100? For myself, a $500 threshold might make more sense but that might be too high or low for others. This really depends on how large the loss is or what percentge of your assets it might be since taking a 100 loss on a million dollar portfolio might be beneficial, but not worth the work whereas a $100 loss on a $1000 portfolio might make a lot of sense since percentage wise it is so much greater and a more important loss to the individual holder.

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Re: When do YOU pull the trigger for TLH? [Tax Loss Harvesting]

Post by indexonlyplease » Sat Nov 24, 2018 1:57 pm

Artsdoctor wrote:
Fri Nov 02, 2018 5:37 pm
Greenman72 wrote:
Fri Nov 02, 2018 8:45 am
Rarely, if ever, do I recommend TLH.

If you think about it, all you’re doing is reducing your basis. So you’re really just kicking the can down the road, because when you sell that asset in the future, you’ll have a higher gain, and wind up paying back all that money that you thought you saved.

The only way that this works in the long run is if you hold onto your securities until you die and get a basis step-up.
To be sure, this is the traditional teaching: tax deferral.

In practice, though, there are many other advantages to tax-loss harvesting.

You mentioned one: stepped up basis on death. This is not an insignificant advantage still it applies to the surviving spouse; it's rare that both spouses die simultaneously.

As others have mentioned, you also have a $3,000 loss which reduces your personal income tax. Granted, if you are in a small marginal tax bracket, this could be limited. If you're not, then you save over $1,000 per year in federal tax and also whatever your marginal tax rate is in state tax (some states allow carryover losses, some do not).

There are some people who are philanthropically inclined. If so, you can easily transfer over those highly appreciated shares (those with the lowest cost basis from all that tax-loss harvesting) to a donor advised fund: you haven't delayed paying taxes on capital gains, you've eliminated them.

Lastly, the real estate deduction remains generous but for those in high cost of living areas, you can use all of those carryover losses to offset the gain on your primary residence. The sale of a residence occurs in one year and there's no way to really spread it out--so those capital gains can really affect your total tax significantly.

So you are right to question to utility of tax-loss harvesting, but you should also appreciate that many people have completely different investment and financial needs than you do.
Question: so if I never use this money in my taxed account my wife will get it in a step up basis. And if she never uses the money my kids will get it in a step up basis. So I would never pay long term capital gains. Also, wife or kids would not when they take over the fund.

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