Qualified Dividends and Tax Loss Harvesting

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dwickenh
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Qualified Dividends and Tax Loss Harvesting

Post by dwickenh »

I am wondering how other investors handle the problem of qualified dividends when tax loss harvesting.
I would like to harvest a sizable amount of losses from my foreign equity fund. I have a suitable partner
to buy, but the dividends will be paid in a week for the new fund. That may make the dividends non-qualified
due to the 60 day rule for qualified dividends. Do most people wait for the dividends to be qualified, or bite the
bullet and get the tax loss booked now?

Thanks,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
jdilla1107
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Re: Qualified Dividends and Tax Loss Harvesting

Post by jdilla1107 »

I'm not following what the problem is. Can't you just make sure you hold the new fund for 60 days?
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HueyLD
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Re: Qualified Dividends and Tax Loss Harvesting

Post by HueyLD »

According to the SEC:

“If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.”

So, if you want to sell and the benefit of TLH outweighs the benefit of dividends, you will want to sell before the ex-dividend date so that you won even receive the dividend.

And if you still want to avoid receiving dividends when buying a non substantially identical fund, make sure you buy the new fund on or before its ex-dividend date.

The above strategy assumes that you want to avoid getting dividend income for tax reasons.
Living Free
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Re: Qualified Dividends and Tax Loss Harvesting

Post by Living Free »

I’d calculate the difference it would be if all the dividends were qualified (or whatever the ratio is in the fund you use of qualified vs non qualified) vs non qualified and weigh that against the benefit of the tax loss harvesting.
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dwickenh
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Re: Qualified Dividends and Tax Loss Harvesting

Post by dwickenh »

Thanks for the link, I should have found that one myself but I appreciate your effort.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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dwickenh
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Re: Qualified Dividends and Tax Loss Harvesting

Post by dwickenh »

jdilla1107 wrote: Fri Mar 13, 2020 7:58 am I'm not following what the problem is. Can't you just make sure you hold the new fund for 60 days?
From Fidelity:


All of the following requirements must be met:

The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
For certain preferred stock, the security must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date. The amount received by the fund from that dividend-generating security must have been subsequently distributed to you.
You must have held the applicable share of the fund for at least 61 days out of the 121-day period that began 60 days before the fund’s ex-dividend date.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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dwickenh
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Location: Illinois

Re: Qualified Dividends and Tax Loss Harvesting

Post by dwickenh »

It appears the best plan is to do the tax loss harvesting just after the replacement fund pays it's dividends. With this market, waiting 10 days should
not be a problem!! :shock:
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
jdilla1107
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Re: Qualified Dividends and Tax Loss Harvesting

Post by jdilla1107 »

dwickenh wrote: Fri Mar 13, 2020 8:25 am
jdilla1107 wrote: Fri Mar 13, 2020 7:58 am I'm not following what the problem is. Can't you just make sure you hold the new fund for 60 days?
From Fidelity:


All of the following requirements must be met:

The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
For certain preferred stock, the security must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date. The amount received by the fund from that dividend-generating security must have been subsequently distributed to you.
You must have held the applicable share of the fund for at least 61 days out of the 121-day period that began 60 days before the fund’s ex-dividend date.
Right. Just hold the new fund for 61 days. Bogleheads wiki says the same:

"Even if you intend to switch back immediately, if Fund B pays a qualified dividend, you need to hold Fund B for 61 days rather than 31 or else the dividend loses its qualified status, and waiting 61 days increases the potential cost of switching back."
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