What's the big deal on TLH

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boater07
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What's the big deal on TLH

Post by boater07 »

I've read so many posts on this subject that my head is spinning.
What's the big deal about deducting a 3000 loss. Sure, why not take it, but meaningless
in a large portfolio.
I just took a 12K STCL today and no idea what it will do in my advanced years
Makefile
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Re: What's the big deal on TLH

Post by Makefile »

boater07 wrote: Thu May 12, 2022 9:15 pm I've read so many posts on this subject that my head is spinning.
What's the big deal about deducting a 3000 loss. Sure, why not take it, but meaningless
in a large portfolio.
I just took a 12K STCL today and no idea what it will do in my advanced years
You can--in fact, you must--use the capital loss carryover to offset your future realized gains, and to the extent any is left over, you take the loss against your $3,000 of your ordinary income each year.

Since a $12,000 loss carryover will be used up in at most four years, I don't think it's going to do anything for your advanced years.

Suppose you're in a 32% tax bracket today and also pay the 3.8% net investment income tax. The $3,000 against ordinary income saves you 35.8% tax today (plus state, presumably) with the hope that when you use the assets in retirement you will be in a much lower bracket.

And if you die without selling the assets you tax loss harvested into, then with the step up in basis, the tax deduction you received via the tax loss harvesting was essentially free.
Ron Ronnerson
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Re: What's the big deal on TLH

Post by Ron Ronnerson »

Since it's easy to do, you might as well. However much less you pay in taxes becomes available to be invested. Over the long term, with compounding, a little bit of savings can grow quite a bit. It's a nice gift to your future self considering the cost is a few minutes of your time today.
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Nate79
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Re: What's the big deal on TLH

Post by Nate79 »

You gain a little money but also gain flexibility for the future using the losses when you need them at a later time without any downside.
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boater07
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Re: What's the big deal on TLH

Post by boater07 »

Thank you both.
I already learned my lesson today. The fund I sold w/o a replacement is up more today than my tax saving,
Looks like I have much to learn. At least I have 6 months to get some CG :)
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Re: What's the big deal on TLH

Post by muffins14 »

boater07 wrote: Fri May 13, 2022 12:06 pm Thank you both.
I already learned my lesson today. The fund I sold w/o a replacement is up more today than my tax saving,
Looks like I have much to learn. At least I have 6 months to get some CG :)
This is why it’s strongly recommended to buy a replacement rather than remain out of the market
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international001
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Re: What's the big deal on TLH

Post by international001 »

You can save at max tax-bracket*$3000 a year
Sure, why not? BUt I agree with the OP. It's not a huge deal for the average BH

I'm using TLH to sell some individual stocks I have. I described by findings here: https://bogleheads.org/forum/viewtopic.php?t=375417
IN summary, you should have some carryovers to offset your future regular income. But more than 5 years is a waste, IMHO.
richard.h.gao
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Re: What's the big deal on TLH

Post by richard.h.gao »

Makefile wrote: Thu May 12, 2022 9:33 pm You can--in fact, you must--use the capital loss carryover to offset your future realized gains, and to the extent any is left over, you take the loss against your $3,000 of your ordinary income each year.
Sounds more like an accounting headache than anything else.
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Re: What's the big deal on TLH

Post by muffins14 »

international001 wrote: Fri May 13, 2022 6:18 pm You can save at max tax-bracket*$3000 a year
Sure, why not? BUt I agree with the OP. It's not a huge deal for the average BH

I'm using TLH to sell some individual stocks I have. I described by findings here: https://bogleheads.org/forum/viewtopic.php?t=375417
IN summary, you should have some carryovers to offset your future regular income. But more than 5 years is a waste, IMHO.
Why would it be a waste when you can offset future gains, too? Seems like avoiding capital gains tax, even if at long-term rates, would be a good thing.
35% VTI, 25% AVUV, 15% IXUS, 15% AVDV, 10% VWO
muffins14
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Re: What's the big deal on TLH

Post by muffins14 »

richard.h.gao wrote: Fri May 13, 2022 6:22 pm
Makefile wrote: Thu May 12, 2022 9:33 pm You can--in fact, you must--use the capital loss carryover to offset your future realized gains, and to the extent any is left over, you take the loss against your $3,000 of your ordinary income each year.
Sounds more like an accounting headache than anything else.
It’s tracked pretty simply, I let TurboTax track it for me and don’t really think about it. I do note the carryover amount in a spreadsheet Judy to double check when I file.
35% VTI, 25% AVUV, 15% IXUS, 15% AVDV, 10% VWO
Dave55
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Re: What's the big deal on TLH

Post by Dave55 »

In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
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Normchad
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Re: What's the big deal on TLH

Post by Normchad »

Dave55 wrote: Fri May 13, 2022 6:26 pm In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
This is *the big deal* for me. I plan to retire at 55 and live off my taxable account until 70. So by TLH, I am reducing taxes now at 30%, and I’ll be able to fully write off some of the gains when I finally do sell my taxable shares for living expenses. (And even if I couldn’t do that, I am saving bigly taxes this year).

A million dollar taxable portfolio probably spits out. 20K/year in taxable income. And at 30%, that’s like 6K in taxes. I won’t be paying that this year, so I’m ahead by 6K. All I had to do was exchange shares of S&P500 fund for shares of US Total index fund.

Really though, TLH is a case of “making the best of a bad situation”.
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Re: What's the big deal on TLH

Post by Dave55 »

Normchad wrote: Fri May 13, 2022 6:33 pm
Dave55 wrote: Fri May 13, 2022 6:26 pm In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
This is *the big deal* for me. I plan to retire at 55 and live off my taxable account until 70. So by TLH, I am reducing taxes now at 30%, and I’ll be able to fully write off some of the gains when I finally do sell my taxable shares for living expenses. (And even if I couldn’t do that, I am saving bigly taxes this year).

A million dollar taxable portfolio probably spits out. 20K/year in taxable income. And at 30%, that’s like 6K in taxes. I won’t be paying that this year, so I’m ahead by 6K. All I had to do was exchange shares of S&P500 fund for shares of US Total index fund.

Really though, TLH is a case of “making the best of a bad situation”.
I have been living off my taxable account since my mid-50's and now I am mid 60's. I have been TLH-ing when the right occasion arises for many years. Works wonders when tax time comes around (if I harvested gains).

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
ObiQuiet
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Re: What's the big deal on TLH

Post by ObiQuiet »

On a larger scale, offset the gain on selling a house which has appreciated more than the allowed exemptions. Leaving more $$ for assisted living or renting...

edit: there is a current thread with that exact point:
viewtopic.php?t=377620
carminered2019
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Re: What's the big deal on TLH

Post by carminered2019 »

March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
Normchad
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Re: What's the big deal on TLH

Post by Normchad »

carminered2019 wrote: Fri May 13, 2022 8:21 pm March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
To make it crystal clear, you avoided paying tax on that $125K gain. And if you’re in the 25% bracket, you are straight up saving over 30K on your tax bill that year. Enough savings to pay cash for a bogleheads approved Toyota Camry.

And it took you what, 5-10 minutes of clicking buttons?
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StevieG72
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Re: What's the big deal on TLH

Post by StevieG72 »

Ok, so you can’t fix stupid but I don’t think that is my primary issue!

I think I am missing something in regards to TLH.

Reading this https://www.investopedia.com/terms/t/ta ... esting.asp mentions the $3,000 limit rule but seems to ignore it with the example used. The example shows a tax savings of $63,000 by using TLH.

My understanding was that you can only use $3,000 in losses per year. Am I missing something?
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ObiQuiet
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Re: What's the big deal on TLH

Post by ObiQuiet »

Yeah, it's not obvious. The 3k limit applies to income, not capital gains. So you can't use TLH to offset your salary by more than 3k per year.
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Re: What's the big deal on TLH

Post by marcopolo »

Normchad wrote: Fri May 13, 2022 6:33 pm
Dave55 wrote: Fri May 13, 2022 6:26 pm In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
This is *the big deal* for me. I plan to retire at 55 and live off my taxable account until 70. So by TLH, I am reducing taxes now at 30%, and I’ll be able to fully write off some of the gains when I finally do sell my taxable shares for living expenses. (And even if I couldn’t do that, I am saving bigly taxes this year).

A million dollar taxable portfolio probably spits out. 20K/year in taxable income. And at 30%, that’s like 6K in taxes. I won’t be paying that this year, so I’m ahead by 6K. All I had to do was exchange shares of S&P500 fund for shares of US Total index fund.

Really though, TLH is a case of “making the best of a bad situation”.
it can work against you if you are in the 0% CG tax bracket when withdrawing, like in early retirement.

You lower your cost basis, which potentially creates a bigger obligation later, like when you are forced to take RMDs, and then the losses you just harvested get wiped out by CG that would have been taxed at 0% anyway. :oops:
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: What's the big deal on TLH

Post by Normchad »

StevieG72 wrote: Fri May 13, 2022 8:54 pm Ok, so you can’t fix stupid but I don’t think that is my primary issue!

I think I am missing something in regards to TLH.

Reading this https://www.investopedia.com/terms/t/ta ... esting.asp mentions the $3,000 limit rule but seems to ignore it with the example used. The example shows a tax savings of $63,000 by using TLH.

My understanding was that you can only use $3,000 in losses per year. Am I missing something?
Yes, you are missing something. You can use losses to offset $3K of ordinary income. But before you do that, you can offset unlimited amounts of capital gains.

And if you have losses you can’t fully use this year, it carries over to next year. And if you don’t use it all next year, it Carrie’s over again.
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Re: What's the big deal on TLH

Post by marcopolo »

Normchad wrote: Fri May 13, 2022 9:09 pm
StevieG72 wrote: Fri May 13, 2022 8:54 pm Ok, so you can’t fix stupid but I don’t think that is my primary issue!

I think I am missing something in regards to TLH.

Reading this https://www.investopedia.com/terms/t/ta ... esting.asp mentions the $3,000 limit rule but seems to ignore it with the example used. The example shows a tax savings of $63,000 by using TLH.

My understanding was that you can only use $3,000 in losses per year. Am I missing something?
Yes, you are missing something. You can use losses to offset $3K of ordinary income. But before you do that, you can offset unlimited amounts of capital gains.

And if you have losses you can’t fully use this year, it carries over to next year. And if you don’t use it all next year, it Carrie’s over again.
That might be useful if you actually have capital gains that would have been taxed. But, if you are simply harvesting gains to take advantage of the available losses, it does not really provide much benefit. The net tax liability does not really change. Although, it could be useful for exiting position in investments that had gains, but you don't want to own anymore.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: What's the big deal on TLH

Post by international001 »

muffins14 wrote: Fri May 13, 2022 6:23 pm
international001 wrote: Fri May 13, 2022 6:18 pm You can save at max tax-bracket*$3000 a year
Sure, why not? BUt I agree with the OP. It's not a huge deal for the average BH

I'm using TLH to sell some individual stocks I have. I described by findings here: https://bogleheads.org/forum/viewtopic.php?t=375417
IN summary, you should have some carryovers to offset your future regular income. But more than 5 years is a waste, IMHO.
Why would it be a waste when you can offset future gains, too? Seems like avoiding capital gains tax, even if at long-term rates, would be a good thing.
You are just moving cost basis around. The amount of capital gains you substract in your investments is the amount of capital gains the funds you did TLH over increased their cost basis.

If your capital gain tax rate is constant, the net effect is 0.
Morik
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Re: What's the big deal on TLH

Post by Morik »

marcopolo wrote: Fri May 13, 2022 9:09 pm
Normchad wrote: Fri May 13, 2022 6:33 pm
Dave55 wrote: Fri May 13, 2022 6:26 pm In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
This is *the big deal* for me. I plan to retire at 55 and live off my taxable account until 70. So by TLH, I am reducing taxes now at 30%, and I’ll be able to fully write off some of the gains when I finally do sell my taxable shares for living expenses. (And even if I couldn’t do that, I am saving bigly taxes this year).

A million dollar taxable portfolio probably spits out. 20K/year in taxable income. And at 30%, that’s like 6K in taxes. I won’t be paying that this year, so I’m ahead by 6K. All I had to do was exchange shares of S&P500 fund for shares of US Total index fund.

Really though, TLH is a case of “making the best of a bad situation”.
it can work against you if you are in the 0% CG tax bracket when withdrawing, like in early retirement.

You lower your cost basis, which potentially creates a bigger obligation later, like when you are forced to take RMDs, and then the losses you just harvested get wiped out by CG that would have been taxed at 0% anyway. :oops:
In such situations one should consider TGH instead--tax gain harvesting. If you still have room to realize capital gains at the 0% rate, you can sell investments that have a gain. IIUC the wash sale rule doesn't apply and you could sell and then repurchase the same investment immediately and you'll have the current price as the new cost basis.
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Re: What's the big deal on TLH

Post by muffins14 »

international001 wrote: Sun May 15, 2022 7:28 pm
muffins14 wrote: Fri May 13, 2022 6:23 pm
international001 wrote: Fri May 13, 2022 6:18 pm You can save at max tax-bracket*$3000 a year
Sure, why not? BUt I agree with the OP. It's not a huge deal for the average BH

I'm using TLH to sell some individual stocks I have. I described by findings here: https://bogleheads.org/forum/viewtopic.php?t=375417
IN summary, you should have some carryovers to offset your future regular income. But more than 5 years is a waste, IMHO.
Why would it be a waste when you can offset future gains, too? Seems like avoiding capital gains tax, even if at long-term rates, would be a good thing.
You are just moving cost basis around. The amount of capital gains you substract in your investments is the amount of capital gains the funds you did TLH over increased their cost basis.

If your capital gain tax rate is constant, the net effect is 0.
I imagine many people can experience lower capital gain tax rates in retirement. today, I’m at the max tax bracket and also have state tax, NIIT tax, the additional Medicare tax, and for long term gains I’m in the 20% bracket. I expect to be in the 15% long-term capital gains bracket in retirement and to have much lower marginal rates on short-term gains too
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marcopolo
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Re: What's the big deal on TLH

Post by marcopolo »

Morik wrote: Sun May 15, 2022 7:49 pm
marcopolo wrote: Fri May 13, 2022 9:09 pm
Normchad wrote: Fri May 13, 2022 6:33 pm
Dave55 wrote: Fri May 13, 2022 6:26 pm In retirement when you are harvesting your portfolio to pay your expenses, if you have capital loss's from TLH-ing that you can use to offset the gains you are harvesting, you pay zero taxes. That is a big deal and a big savings.

Dave
This is *the big deal* for me. I plan to retire at 55 and live off my taxable account until 70. So by TLH, I am reducing taxes now at 30%, and I’ll be able to fully write off some of the gains when I finally do sell my taxable shares for living expenses. (And even if I couldn’t do that, I am saving bigly taxes this year).

A million dollar taxable portfolio probably spits out. 20K/year in taxable income. And at 30%, that’s like 6K in taxes. I won’t be paying that this year, so I’m ahead by 6K. All I had to do was exchange shares of S&P500 fund for shares of US Total index fund.

Really though, TLH is a case of “making the best of a bad situation”.
it can work against you if you are in the 0% CG tax bracket when withdrawing, like in early retirement.

You lower your cost basis, which potentially creates a bigger obligation later, like when you are forced to take RMDs, and then the losses you just harvested get wiped out by CG that would have been taxed at 0% anyway. :oops:
In such situations one should consider TGH instead--tax gain harvesting. If you still have room to realize capital gains at the 0% rate, you can sell investments that have a gain. IIUC the wash sale rule doesn't apply and you could sell and then repurchase the same investment immediately and you'll have the current price as the new cost basis.
That's one option.
I have been doing small Roth conversions instead.
I think that is probably a little better. But, neither is that big of a deal.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Archean
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Re: What's the big deal on TLH

Post by Archean »

Additional reasons you might want to reset the basis is when you donate appreciated shares to charity. You may claim the deduction of the appreciated securities and use the loss to offset future gains. Charitable giving is a great way to use TLH.
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Counterpoint
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Re: What's the big deal on TLH

Post by Counterpoint »

boater07 wrote: Thu May 12, 2022 9:15 pm I've read so many posts on this subject that my head is spinning.
What's the big deal about deducting a 3000 loss. Sure, why not take it, but meaningless
in a large portfolio.
I think whether TLH is worth it or not depends on your specific financial situation as well as your personal financial philosophy.

I’m a plain vanilla BH type who really values simplicity and over the decades have come to realize the wisdom of the 3-fund philosophy (or as close to it as possible) in terms of keeping your focus on the big picture issues - whether in your finances or in your life.

But after seeing so many threads on TLH, I decided to see what the fuss was about and calculated the benefit of a hypothetical $30K loss if we did a TLH on it, and the present value benefit in our situation was barely $2K. See this calculation in viewtopic.php?t=309048

It appears the benefits in our case are particularly small because:
(1) We had a relatively short projected holding period for the securities of 10 years, unlike some who may hold them till death and hence never pay the capital gains tax (or younger investors who would hold the securities till well into retirement).
(2) The differential between our current ordinary income MTR of 33% and our projected future capital gains tax rate of 28% is a small one, at only 5%.

If I had to realize and pay taxes on significant real estate gains beyond the exemption (like some of the posts above), the calculation would have been different - but even then I would do it only if the amounts were meaningful in the context of my finances. There’s also the possibility of donating the harvested securities after they drop in basis, but in my situation I have far lower cost basis investments from early in my investing career that I’ve used for donations.

The other benefit of TLH is psychological: When the market is down, you have something to be excited about.

But as for me, I’m happier spending little to no time thinking about where the market is going, and keeping things simple has been a big part of that. So I was actually pleased when I saw how small the TLH benefits were for us, since it made it very easy for us to pass on TLH.
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Re: What's the big deal on TLH

Post by muffins14 »

I commented in the other thread. If you can indeed have the gains in ten years treated as long-term gains, I think your benefit from the 30k loss would be more like $4k than $2k
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Robot Monster
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Re: What's the big deal on TLH

Post by Robot Monster »

If you tax loss harvest only a portion of your VTI shares with, let's say, VOO, then don't you possibly end up getting stuck having two funds, which runs afoul of the idea of simplicity?
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Re: What's the big deal on TLH

Post by muffins14 »

Robot Monster wrote: Mon May 16, 2022 8:45 am If you tax loss harvest only a portion of your VTI shares with, let's say, VOO, then don't you possibly end up getting stuck having two funds, which runs afoul of the idea of simplicity?
I think sticking to a hard rule of “can only have one fund” is silly, when it means you lose thousands of dollars in opportunity cost. It’s not like it’s much work to track your investments once you have a spreadsheet set up one time that adds up VTI and VOO and calls them “US allocation”
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DoNuffin
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Re: What's the big deal on TLH

Post by DoNuffin »

Complicating a portfolio for TLH is an issue. I personally want to minimize the number of duplicate funds, and I draw the line at two TSM funds that can trade losses. Anymore than that is not worth it to me.
billaster
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Re: What's the big deal on TLH

Post by billaster »

Normchad wrote: Fri May 13, 2022 8:26 pm
carminered2019 wrote: Fri May 13, 2022 8:21 pm March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
To make it crystal clear, you avoided paying tax on that $125K gain. And if you’re in the 25% bracket, you are straight up saving over 30K on your tax bill that year. Enough savings to pay cash for a bogleheads approved Toyota Camry.

And it took you what, 5-10 minutes of clicking buttons?
Yes, but they lowered the basis on their repurchased shares by $125K so increased their future taxes. It's not the total free lunch you imply but it might be a discounted lunch, depending on future circumstances.
H-Town
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Re: What's the big deal on TLH

Post by H-Town »

billaster wrote: Mon May 16, 2022 10:30 am
Normchad wrote: Fri May 13, 2022 8:26 pm
carminered2019 wrote: Fri May 13, 2022 8:21 pm March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
To make it crystal clear, you avoided paying tax on that $125K gain. And if you’re in the 25% bracket, you are straight up saving over 30K on your tax bill that year. Enough savings to pay cash for a bogleheads approved Toyota Camry.

And it took you what, 5-10 minutes of clicking buttons?
Yes, but they lowered the basis on their repurchased shares by $125K so increased their future taxes. It's not the total free lunch you imply but it might be a discounted lunch, depending on future circumstances.
Funny you used the word "discounted". The first rule of finance: A dollar today worth more than a dollar in the future. Put that tax saving to work. It will be compounded *for you*, instead of paying for the government spending.
Time is the ultimate currency.
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Re: What's the big deal on TLH

Post by Silverado »

Normchad wrote: Fri May 13, 2022 9:09 pm
StevieG72 wrote: Fri May 13, 2022 8:54 pm Ok, so you can’t fix stupid but I don’t think that is my primary issue!

I think I am missing something in regards to TLH.

Reading this https://www.investopedia.com/terms/t/ta ... esting.asp mentions the $3,000 limit rule but seems to ignore it with the example used. The example shows a tax savings of $63,000 by using TLH.

My understanding was that you can only use $3,000 in losses per year. Am I missing something?
Yes, you are missing something. You can use losses to offset $3K of ordinary income. But before you do that, you can offset unlimited amounts of capital gains.

And if you have losses you can’t fully use this year, it carries over to next year. And if you don’t use it all next year, it Carrie’s over again.
The word I bolded can confuse people. It’s not optional. For each tax year, you have to use carryover losses to offset capital gains first, then if you still have losses, you can offset the $3k in income. Then of course any remaining losses carryover to the next tax year.

It gets a little semantical when trying to generically state things…
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Re: What's the big deal on TLH

Post by drk »

Robot Monster wrote: Mon May 16, 2022 8:45 am If you tax loss harvest only a portion of your VTI shares with, let's say, VOO, then don't you possibly end up getting stuck having two funds, which runs afoul of the idea of simplicity?
It's not as though you have to do anything with the funds. I have ... let's see ... four US total-ish market funds right now: VTI, VOO, SCHX, and SCHB. I do not find that this complicates anything because the brokerage tracks all the details for me, and downloading my monthly statement takes the same effort regardless.
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Re: What's the big deal on TLH

Post by Robot Monster »

muffins14 wrote: Mon May 16, 2022 8:55 am
Robot Monster wrote: Mon May 16, 2022 8:45 am If you tax loss harvest only a portion of your VTI shares with, let's say, VOO, then don't you possibly end up getting stuck having two funds, which runs afoul of the idea of simplicity?
I think sticking to a hard rule of “can only have one fund” is silly, when it means you lose thousands of dollars in opportunity cost. It’s not like it’s much work to track your investments once you have a spreadsheet set up one time that adds up VTI and VOO and calls them “US allocation”
drk wrote: Mon May 16, 2022 10:55 am It's not as though you have to do anything with the funds. I have ... let's see ... four US total-ish market funds right now: VTI, VOO, SCHX, and SCHB. I do not find that this complicates anything because the brokerage tracks all the details for me, and downloading my monthly statement takes the same effort regardless.
Okay, thank you to you both. I did it! Am officially a VTI/VOO investor. Guess I was getting a little too dogmatic about keeping it simple.
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Re: What's the big deal on TLH

Post by Normchad »

billaster wrote: Mon May 16, 2022 10:30 am
Normchad wrote: Fri May 13, 2022 8:26 pm
carminered2019 wrote: Fri May 13, 2022 8:21 pm March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
To make it crystal clear, you avoided paying tax on that $125K gain. And if you’re in the 25% bracket, you are straight up saving over 30K on your tax bill that year. Enough savings to pay cash for a bogleheads approved Toyota Camry.

And it took you what, 5-10 minutes of clicking buttons?
Yes, but they lowered the basis on their repurchased shares by $125K so increased their future taxes. It's not the total free lunch you imply but it might be a discounted lunch, depending on future circumstances.
That’s a good way to think of it. And details matter. A lot. For me, I do expect it to be a totally free lunch. Completely understand that won’t be true for a lot of people though.
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Re: What's the big deal on TLH

Post by MnD »

In 08/09 I think I booked around a net 70k in capital losses with tax loss harvesting. That's after offsetting some gains.

In addition to the 3K per year for several year deduction, the 70K offset capital gains in future years. We do spend and sell from taxable from time to time.

And best off all I was able to exchange every single "first generation" ETF (like SPY, GWX, EEM) with better designed, broader and much lower ER replacements with no tax gain, even though some of the lots of these Gen 1 ETF's were at gains even at the 09 lows.

The folks that think this just about 3K per year, is "locking in losses", isn't "staying the course" or are overwhelmed by the "complexity" of a very simple process seem to lack a basic grounding in equity investing especially from a tax perspective. And hence probably shouldn't be self-managing their investments.

And it's not a given you will be faced with a higher taxes in the future due to your tax loss harvesting paired shares you purchased. You might die with them in your portfolio, donate them, gift them to family that is in a 0% or very low capital gains bracket or your future self might be in that situation.

It's just simple math.
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Re: What's the big deal on TLH

Post by jmk »

Nate79 wrote: Thu May 12, 2022 9:36 pm You gain a little money but also gain flexibility for the future using the losses when you need them at a later time without any downside.
Isn't the downside that you're resetting the basis and will pay more tax on the gains in the future? That may or may not make sense, depending on one's unique situation.
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Re: What's the big deal on TLH

Post by Normchad »

Do we know of anybody on these boards who has done TLH, and it turned out to be a bad move for them?

Any old threads with that kind of info?
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Re: What's the big deal on TLH

Post by Normchad »

Normchad wrote: Mon May 16, 2022 8:55 pm Do we know of anybody on these boards who has done TLH, and it turned out to be a bad move for them?

Any old threads with that kind of info?
Be still my beating heart! viewtopic.php?t=116406

7% of respondents regretted doing TLH.
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Re: What's the big deal on TLH

Post by marcopolo »

Normchad wrote: Mon May 16, 2022 8:55 pm Do we know of anybody on these boards who has done TLH, and it turned out to be a bad move for them?

Any old threads with that kind of info?
Well, I haven't done them in this down turn. So, it hasn't turned out bad. But, if I blindly did them, it could certainly be detrimental in our situation.

We are in early retirement, and live of dividends and withdrawals from our portfolio. Our withdrawals are at the 0% LTCG rate.

All of our equity positions still have gains. We have some bond funds that we re-balanced into in the last couple of years that have modest losses.

Any TLH we do with those bond funds would simply cancel out gains from sale of equities that are taxed at 0% anyway.

We would then end up with a lower basis in those funds. Depending on when we withdraw from them, they might or might not be in a higher tax bracket.

One thing I am considering is to do the TLH anyway, and create a little more room to do Roth Conversions in the 12% tax bracket.

I suspect many early retirees are in a similar situation.


We did TLH quite a bit during accumulation years, where there was significant tangible benefits.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: What's the big deal on TLH

Post by international001 »

muffins14 wrote: Sun May 15, 2022 8:51 pm
I imagine many people can experience lower capital gain tax rates in retirement. today, I’m at the max tax bracket and also have state tax, NIIT tax, the additional Medicare tax, and for long term gains I’m in the 20% bracket. I expect to be in the 15% long-term capital gains bracket in retirement and to have much lower marginal rates on short-term gains too
That's a sofisticated problem.
Use your capital losses now while you are in the 20% bracket or later while you are in the 15%?
You can do it now at 20% and do some capital gain harvesting and pay taxes now. But not too much, or you'll loose compounding benefits.

Anyway, if cap gain bracket is constant, there is no benefit.
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Re: What's the big deal on TLH

Post by international001 »

MnD wrote: Mon May 16, 2022 5:27 pm
The folks that think this just about 3K per year, is "locking in losses", isn't "staying the course" or are overwhelmed by the "complexity" of a very simple process seem to lack a basic grounding in equity investing especially from a tax perspective. And hence probably shouldn't be self-managing their investments.
Can you illuminate-me with one example?
Imagine I don't have any securities I *must* sell
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Re: What's the big deal on TLH

Post by international001 »

marcopolo wrote: Mon May 16, 2022 9:16 pm One thing I am considering is to do the TLH anyway, and create a little more room to do Roth Conversions in the 12% tax bracket.
How would TLH affect Roth conversions?
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Re: What's the big deal on TLH

Post by international001 »

Normchad wrote: Mon May 16, 2022 8:55 pm Do we know of anybody on these boards who has done TLH, and it turned out to be a bad move for them?

Any old threads with that kind of info?
I don't think it's bad, just neutral at some point. I do as much as I can, but the only benefits IMO:

- $3k a year for regular income
- Useful in case you have to sell something (e.g. old/bad stocks/ETFs or just for rebalancing purposes)

Do it by all means, just don't think it's the holy grail.
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Re: What's the big deal on TLH

Post by marcopolo »

international001 wrote: Fri May 20, 2022 6:49 pm
marcopolo wrote: Mon May 16, 2022 9:16 pm One thing I am considering is to do the TLH anyway, and create a little more room to do Roth Conversions in the 12% tax bracket.
How would TLH affect Roth conversions?
TLH can cancel Capital Gains, which reduces your taxable income, creating more head room to make Roth Conversions at the current tax bracket.

Let's say your taxable income (absent TLH and Roth Conversions) comes to $60k after deductions, and includes $30k of capital gains.
For a married couple, that would allow ~$23k of Roth Conversions in the 12% tax bracket. Additional conversions would be taxed at higher rates.

If that couple does TLH to produce $30k in losses, that will cancel out the $30k in capital gains, leaving $30k of taxable income.
They can now do ~$53k of Roth Conversions in the 12% tax bracket.

So, while the TLH was kind of wasted (cancelling cap gains that would have been taxed at 0% LTCG rate anyway), it does provide some benefit by allowing additional Roth Conversions at a low rate.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: What's the big deal on TLH

Post by international001 »

marcopolo wrote: Fri May 20, 2022 7:07 pm
TLH can cancel Capital Gains, which reduces your taxable income, creating more head room to make Roth Conversions at the current tax bracket.

Let's say your taxable income (absent TLH and Roth Conversions) comes to $60k after deductions, and includes $30k of capital gains.
For a married couple, that would allow ~$23k of Roth Conversions in the 12% tax bracket. Additional conversions would be taxed at higher rates.

If that couple does TLH to produce $30k in losses, that will cancel out the $30k in capital gains, leaving $30k of taxable income.
They can now do ~$53k of Roth Conversions in the 12% tax bracket.

So, while the TLH was kind of wasted (cancelling cap gains that would have been taxed at 0% LTCG rate anyway), it does provide some benefit by allowing additional Roth Conversions at a low rate.
Let'd assume all it's LTCG. Suppose $55k of regular income plus $30k of LTCG and $25k of standard deduction
12% tax bracket ends up at $83k.
You are going to be tax with regular income rates only $30k. Why can't you do $53k of roth conversions?
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Re: What's the big deal on TLH

Post by Cosmo »

Normchad wrote: Fri May 13, 2022 8:26 pm
carminered2019 wrote: Fri May 13, 2022 8:21 pm March 2020 I was able to harvest 125k of stock losses to offset my set 125k capital gain on a real estate sale and stock portfolio came back with a gain of 12x by December 2020.

Thank you BH !!!
To make it crystal clear, you avoided paying tax on that $125K gain. And if you’re in the 25% bracket, you are straight up saving over 30K on your tax bill that year. Enough savings to pay cash for a bogleheads approved Toyota Camry.

And it took you what, 5-10 minutes of clicking buttons?
5-10 seconds.
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Re: What's the big deal on TLH

Post by Cosmo »

boater07 wrote: Thu May 12, 2022 9:15 pm I've read so many posts on this subject that my head is spinning.
What's the big deal about deducting a 3000 loss. Sure, why not take it, but meaningless
in a large portfolio.
I just took a 12K STCL today and no idea what it will do in my advanced years
Size of portfolio has nothing to do it. Ignoring the offsetting of any capital gains, if you are in the 32% tax bracket and you take a $12,000 loss, you save $960 per year for the next four years. Are you saying that is meaningless?
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