PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

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PhysicianOnFIRE
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

vwgrrc wrote: Sat Oct 27, 2018 8:21 pm
PhysicianOnFIRE wrote: Sat Oct 27, 2018 6:54 pm
vwgrrc wrote: Sat Oct 27, 2018 5:05 pm Someone please help me with this. Are these exchanges allowable to trigger TLH (regardless AA):

1. Emerging Market Index -> FTSE All-World ex-US Index Admiral
2. Total International Index -> S&P 500 Index

I wanted to exchange #2 to total US Index. But I plan to add more to that fund (Total US Index) within the next month. So I need to avoid buying that at this time to avoid wash sale, right :confused
This would not trigger a wash sale. You only need to be concerned with buying "replacement shares" of the funds you sell at a loss for the 30 days before and after the tax loss harvest. You can exchange into something and buy it every day for the next 30 days if you wish.

:beer
-PoF
That's what I keep seeing but I think I didn't really understand what it means. In this case #2, a wash sale will be I sold Total International Stock and buy S&P 500 as an exchange. Then I buy some Total International Stock back again with in 30 days. That is a wash sale, correct. Just to confirm. Thank you!
Correct. Buying replacement shares of the fund you sell to harvest tax losses within 30 days before or after constitutes a wash sale. So selling Total International at a loss and buying it back too soon results in a wash sale (or partial wash sale if the value of what you bought is less than what you sold).

In this example, you sold Total International to buy S&P 500. You can buy more S&P 500 at any time without worry.

:beer
-PoF
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
fortyofforty wrote: Sun Oct 28, 2018 6:35 am Very informative. It follows what I've tried to do. One question: is it truly possible in Vanguard to have dividends and capital gains automatically invested in another mutual fund (Money Market - Prime, or Short Term Bond, for example) rather than the Settlement Fund? I'll be thrilled if this is possible.

Yes -- you can set up each Vanguard fund you own to invest dividends into any other Vanguard fund you choose. You will have to set the recipient fund individually for each Vanguard fund you own.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

After reading the article Taylor posted, I don't see the gain for someone taking the loses when one day you will have to pay back the gain in capital gains because of the lower cost basis. So, for someone that will never lower their tax bracket in retirment will just be paying back the gains and maybe at a higher tax rate.

If I am reading this correctly.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by changingtimes »

grabiner wrote: Sun Oct 21, 2018 5:18 pm
JustinR wrote: Sun Oct 21, 2018 5:14 pm What's the difference between short term and long term losses for TLH?
If you have both short-term and long-term gains, short-term losses offset short-term gains, and long-term losses offset long-term gains. If you still have both losses and gains, losses will offset gains of the other time.

Thus short-term losses are slightly better than long-term losses. There is only a difference if your gains exceed your losses and you have both short-term and long-term gains in the same year; if you have short-term losses, more of your taxable gains will be long-term.
So, if as of now I have no short-term losses or gains, and $13,000 in long-term gains (and no long-term losses), what would happen if I TLH'ed $5,000 in short-term losses and $20,000 in long-term losses?
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by LadyGeek »

latebloomer2 has a question which I've moved into a new thread. See: [Help with Tax Loss Harvesting]
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by fortyofforty »

PhysicianOnFIRE wrote: Sun Oct 28, 2018 10:05 am
Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
fortyofforty wrote: Sun Oct 28, 2018 6:35 am Very informative. It follows what I've tried to do. One question: is it truly possible in Vanguard to have dividends and capital gains automatically invested in another mutual fund (Money Market - Prime, or Short Term Bond, for example) rather than the Settlement Fund? I'll be thrilled if this is possible.

Yes -- you can set up each Vanguard fund you own to invest dividends into any other Vanguard fund you choose. You will have to set the recipient fund individually for each Vanguard fund you own.
I see only four choices: Reinvest, Transfer to settlement fund, Transfer to bank account, or Send me a check. No option to exchange into another mutual fund. I will use the bank as an intermediate step, if necessary.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by grabiner »

changingtimes wrote: Sun Oct 28, 2018 10:32 am
grabiner wrote: Sun Oct 21, 2018 5:18 pm
JustinR wrote: Sun Oct 21, 2018 5:14 pm What's the difference between short term and long term losses for TLH?
If you have both short-term and long-term gains, short-term losses offset short-term gains, and long-term losses offset long-term gains. If you still have both losses and gains, losses will offset gains of the other time.

Thus short-term losses are slightly better than long-term losses. There is only a difference if your gains exceed your losses and you have both short-term and long-term gains in the same year; if you have short-term losses, more of your taxable gains will be long-term.
So, if as of now I have no short-term losses or gains, and $13,000 in long-term gains (and no long-term losses), what would happen if I TLH'ed $5,000 in short-term losses and $20,000 in long-term losses?
$13,000 in long-term losses would offset the long-term gains, leaving you with $5000 in short-term losses and $7000 in long-term losses. Then you would take $3000 of short-term losses against ordinary income, carrying over $2000 in short-term losses and $7000 in long-term losses to 2019.

There was no difference in your 2018 tax between short-term and long-term losses because your losses exceeded your gains, but there could be a difference in 2019 if you have both short-term and long-term gains exceeding $9000 then.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

indexonlyplease wrote: Sun Oct 28, 2018 10:32 am After reading the article Taylor posted, I don't see the gain for someone taking the loses when one day you will have to pay back the gain in capital gains because of the lower cost basis. So, for someone that will never lower their tax bracket in retirment will just be paying back the gains and maybe at a higher tax rate.
I'm not sure what exactly you're asking. The benefit of TLH is that you take losses against ordinary income (up to 3k/year) and pay it back, if ever, at long-term gains rates. It the assets end up inherited then step-up in basis in most cases wipes out the gains.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

Earl Lemongrab wrote: Sun Oct 28, 2018 12:09 pm
indexonlyplease wrote: Sun Oct 28, 2018 10:32 am After reading the article Taylor posted, I don't see the gain for someone taking the loses when one day you will have to pay back the gain in capital gains because of the lower cost basis. So, for someone that will never lower their tax bracket in retirment will just be paying back the gains and maybe at a higher tax rate.
I'm not sure what exactly you're asking. The benefit of TLH is that you take losses against ordinary income (up to 3k/year) and pay it back, if ever, at long-term gains rates. It the assets end up inherited then step-up in basis in most cases wipes out the gains.
In the article Taylor has a link to the example is taking 10k in loses for the next 10 years. It stated that the the gains will be paid in the future. I guess when you sell in the future and that the gains could put you in a higher tax bracket. So it sounds like you are delaying paying taxes now but will pay more in the future. I assume this for someone like myself that will be the the 24 percent tax bracket forever or maybe even higher.

https://www.cnbc.com/2014/10/24/weighin ... sting.html
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

indexonlyplease wrote: Sun Oct 28, 2018 12:26 pm In the article Taylor has a link to the example is taking 10k in loses for the next 10 years.
I didn't read the whole article, but I doubt it said anything about 10k in losses every year for ten years. That would be unusual market events. If you take losses, you can use 3k per year against ordinary income. Any you don't use carry over to later years. I'm still using losses I banked in 2008-2009.
It stated that the the gains will be paid in the future. I guess when you sell in the future and that the gains could put you in a higher tax bracket. So it sounds like you are delaying paying taxes now but will pay more in the future. I assume this for someone like myself that will be the the 24 percent tax bracket forever or maybe even higher.
It's unlikely you'll pay more, unless the tax law changes. If you donate the shares (I donated a bunch of ETFs shares late last year to a DAF) then you pay no tax. Similarly if the shares are inherited. If you do need to sell and your tax bracket is high, you use specific ID to choose the ones with the least tax impact.

It seems like you're trying hard to find excuses to not do it. If you don't want to, don't. You're probably missing out on something advantageous, but that's up to you.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by nolesrule »

indexonlyplease wrote: Sun Oct 28, 2018 12:26 pm
Earl Lemongrab wrote: Sun Oct 28, 2018 12:09 pm
indexonlyplease wrote: Sun Oct 28, 2018 10:32 am After reading the article Taylor posted, I don't see the gain for someone taking the loses when one day you will have to pay back the gain in capital gains because of the lower cost basis. So, for someone that will never lower their tax bracket in retirment will just be paying back the gains and maybe at a higher tax rate.
I'm not sure what exactly you're asking. The benefit of TLH is that you take losses against ordinary income (up to 3k/year) and pay it back, if ever, at long-term gains rates. It the assets end up inherited then step-up in basis in most cases wipes out the gains.
In the article Taylor has a link to the example is taking 10k in loses for the next 10 years. It stated that the the gains will be paid in the future. I guess when you sell in the future and that the gains could put you in a higher tax bracket. So it sounds like you are delaying paying taxes now but will pay more in the future. I assume this for someone like myself that will be the the 24 percent tax bracket forever or maybe even higher.

https://www.cnbc.com/2014/10/24/weighin ... sting.html
If you're doing it right, the taxes saved are at your ordinary income tax rate, and the payback of those gains will be at the long term capital gains rate. What you'll save in taxes ultimately is the difference between those rates.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

Earl Lemongrab wrote: Sun Oct 28, 2018 1:04 pm
indexonlyplease wrote: Sun Oct 28, 2018 12:26 pm In the article Taylor has a link to the example is taking 10k in loses for the next 10 years.
I didn't read the whole article, but I doubt it said anything about 10k in losses every year for ten years. That would be unusual market events. If you take losses, you can use 3k per year against ordinary income. Any you don't use carry over to later years. I'm still using losses I banked in 2008-2009.
It stated that the the gains will be paid in the future. I guess when you sell in the future and that the gains could put you in a higher tax bracket. So it sounds like you are delaying paying taxes now but will pay more in the future. I assume this for someone like myself that will be the the 24 percent tax bracket forever or maybe even higher.
It's unlikely you'll pay more, unless the tax law changes. If you donate the shares (I donated a bunch of ETFs shares late last year to a DAF) then you pay no tax. Similarly if the shares are inherited. If you do need to sell and your tax bracket is high, you use specific ID to choose the ones with the least tax impact.

It seems like you're trying hard to find excuses to not do it. If you don't want to, don't. You're probably missing out on something advantageous, but that's up to you.
With the market up for years I have no loses. But I am trying to understand this so when the time comes.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

indexonlyplease wrote: Sun Oct 28, 2018 1:24 pm With the market up for years I have no loses. But I am trying to understand this so when the time comes.
But you keep saying things that don't make a lot of sense. You get that you can reduce your taxable income by 3k/year with losses, so your ordinary federal and state (if any) income taxes saved and available for investment, right?

What is your objection to that?
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by fortyofforty »

Earl Lemongrab wrote: Sun Oct 28, 2018 1:37 pm
indexonlyplease wrote: Sun Oct 28, 2018 1:24 pm With the market up for years I have no loses. But I am trying to understand this so when the time comes.
But you keep saying things that don't make a lot of sense. You get that you can reduce your taxable income by 3k/year with losses, so your ordinary federal and state (if any) income taxes saved and available for investment, right?

What is your objection to that?
Also, if you dollar-cost-average, or reinvest dividends, or reinvest capital gains, you might just have some paper losses. If you've truly got no shares of any investments that are lower in price than when you purchased them, congratulations.
Last edited by fortyofforty on Sun Oct 28, 2018 3:27 pm, edited 1 time in total.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by LadyGeek »

POLO has a question which I've moved into a new thread. See: [Tax Loss Harvesting - iShares lots to Vanguard]
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by LadyGeek »

To new investors: We are more than happy to answer your questions, but please start a new thread in the Personal Finance (Not Investing) forum. Each situation needs detailed information which will derail this general discussion.

If you want the attention of our experienced members, feel free to post a link in this thread.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by vwgrrc »

PhysicianOnFIRE wrote: Sun Oct 28, 2018 10:01 am
vwgrrc wrote: Sat Oct 27, 2018 8:21 pm
PhysicianOnFIRE wrote: Sat Oct 27, 2018 6:54 pm
vwgrrc wrote: Sat Oct 27, 2018 5:05 pm Someone please help me with this. Are these exchanges allowable to trigger TLH (regardless AA):

1. Emerging Market Index -> FTSE All-World ex-US Index Admiral
2. Total International Index -> S&P 500 Index

I wanted to exchange #2 to total US Index. But I plan to add more to that fund (Total US Index) within the next month. So I need to avoid buying that at this time to avoid wash sale, right :confused
This would not trigger a wash sale. You only need to be concerned with buying "replacement shares" of the funds you sell at a loss for the 30 days before and after the tax loss harvest. You can exchange into something and buy it every day for the next 30 days if you wish.

:beer
-PoF
That's what I keep seeing but I think I didn't really understand what it means. In this case #2, a wash sale will be I sold Total International Stock and buy S&P 500 as an exchange. Then I buy some Total International Stock back again with in 30 days. That is a wash sale, correct. Just to confirm. Thank you!
Correct. Buying replacement shares of the fund you sell to harvest tax losses within 30 days before or after constitutes a wash sale. So selling Total International at a loss and buying it back too soon results in a wash sale (or partial wash sale if the value of what you bought is less than what you sold).

In this example, you sold Total International to buy S&P 500. You can buy more S&P 500 at any time without worry.

:beer
-PoF
Thanks. I'm curious if this is the case, why we need to stop auto dividend reinvestment? Or maybe you're concerning when people's retirement accounts holding the same fund and got dividend reinvestment, that would create partial wash sale on the fund they sold in taxable account for TLH?
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by climber2020 »

Any consensus on whether or not 401k contributions can trigger a wash sale? From reading prior threads it seems the tax laws only specify IRAs, and the policy regarding 401k’s was ambiguous.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by island »

Thanks! Will add to my TLH saves
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

climber2020 wrote: Sun Oct 28, 2018 4:27 pm Any consensus on whether or not 401k contributions can trigger a wash sale? From reading prior threads it seems the tax laws only specify IRAs, and the policy regarding 401k’s was ambiguous.
In short, there is a not a consensus. There was some hmmm, discussion here:

viewtopic.php?f=2&t=262085

It would be best not to restart it in this thread.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by James Bond Index »

Thank you for this thread. I am thinking about taking the plunge into tax loss harvesting, but I am still slightly confused on the “30 days before” concept.
Please advise if I have this hypothetical situation correct:

Oct 1st I purchase some TotalStockMarket index--let’s call it "Lot 1"
Oct 22nd I purchase some more TotalStockMarket index--let’s call it “Lot 2”
Oct 23rd the market drops and I want to tax loss harvest and exchange to an S&P500 index

I have to sell both Lot 1 and Lot 2 to avoid a wash sale on Oct 23rd, correct?
What about if I waited until November 1st? If I only sold Lot 2 (but not Lot 1), this would NOT constitute a wash sale, correct?
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

Earl Lemongrab wrote: Sun Oct 28, 2018 1:37 pm
indexonlyplease wrote: Sun Oct 28, 2018 1:24 pm With the market up for years I have no loses. But I am trying to understand this so when the time comes.
But you keep saying things that don't make a lot of sense. You get that you can reduce your taxable income by 3k/year with losses, so your ordinary federal and state (if any) income taxes saved and available for investment, right?

What is your objection to that?
Nothing if it works as good as they say.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by JustinR »

MathIsMyWayr wrote: Sat Oct 20, 2018 7:37 pm
JustinR wrote: Sat Oct 20, 2018 4:03 pm Thank you for this excellent guide.

Two questions:

1) Do online tax preparation sites like TurboTax and TaxAct make recording tax losses, and tax losses rolled over from previous years, easy?

2) You're lowering your cost basis, which means you'll pay more on taxes later on right? This is still a net gain since you're saving on income tax while paying long-term capital gains tax. Am I correct?
2) Yes. Assume you take advantage of TLH, e.g., $100. Your cash will increase by $100 minus tax, e.g., $71, through tax saving. You may also invest $71 which will grow over time. The tax basis of the replacement investment is lowered by $100 which is a fixed amount. You may have to pay a CG tax on $100 when you dispose of the investment. TLH will be a net gain.
Assuming your tax is 29%, doesn't your cash increase by $29, not $71?

So if you TLH $3000, you're saving $870 (now).
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by fortyofforty »

fortyofforty wrote: Sun Oct 28, 2018 11:14 am
PhysicianOnFIRE wrote: Sun Oct 28, 2018 10:05 am
Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
fortyofforty wrote: Sun Oct 28, 2018 6:35 am Very informative. It follows what I've tried to do. One question: is it truly possible in Vanguard to have dividends and capital gains automatically invested in another mutual fund (Money Market - Prime, or Short Term Bond, for example) rather than the Settlement Fund? I'll be thrilled if this is possible.

Yes -- you can set up each Vanguard fund you own to invest dividends into any other Vanguard fund you choose. You will have to set the recipient fund individually for each Vanguard fund you own.
I see only four choices: Reinvest, Transfer to settlement fund, Transfer to bank account, or Send me a check. No option to exchange into another mutual fund. I will use the bank as an intermediate step, if necessary.
After checking with Vanguard, they confirmed what I wrote:

"Currently those are the only options available for dividends and capital gains. They cannot go directly into another fund."
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by MingTyhMaa »

Hello,
If I TLH with VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) -> VFIAX (Vanguard 500 Index Fund Admiral Shares), I would have to exchange ALL shares of VTSAX that I purchased in the past 30 days to VFIAX right to avoid a wash sale right?

In Vanguard, when I am selecting Shares of VTSAX to sell, the window allows me to SORT by Estimated Gain/Loss, and Estimated Gain/Loss/Share.
From the execution standpoint would I just sort by Estimated Gain/Loss/Share and sell the shares that loss the LEAST, but still > $1000 loss or the shares that loss the MOST?
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

fortyofforty wrote: Sun Oct 28, 2018 11:14 am
PhysicianOnFIRE wrote: Sun Oct 28, 2018 10:05 am
Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
fortyofforty wrote: Sun Oct 28, 2018 6:35 am Very informative. It follows what I've tried to do. One question: is it truly possible in Vanguard to have dividends and capital gains automatically invested in another mutual fund (Money Market - Prime, or Short Term Bond, for example) rather than the Settlement Fund? I'll be thrilled if this is possible.

Yes -- you can set up each Vanguard fund you own to invest dividends into any other Vanguard fund you choose. You will have to set the recipient fund individually for each Vanguard fund you own.
I see only four choices: Reinvest, Transfer to settlement fund, Transfer to bank account, or Send me a check. No option to exchange into another mutual fund. I will use the bank as an intermediate step, if necessary.
I'm using a Vanguard Mutual Fund account. I'm given the option "Transfer to a Vanguard Fund." Brokerage accounts may not have that option.

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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by grok87 »

I’m late to this thread. Any concerns about total international and all world ex us as tax loss harvesting partners? I thought vanguard was saying that was a wash sale?

See this thread
viewtopic.php?f=2&t=262085
RIP Mr. Bogle.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by rkhusky »

grok87 wrote: Tue Oct 30, 2018 5:04 pm I’m late to this thread. Any concerns about total international and all world ex us as tax loss harvesting partners? I thought vanguard was saying that was a wash sale?

See this thread
viewtopic.php?f=2&t=262085
No. All World ex-US does not include small caps. Total Int’l does.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by grok87 »

rkhusky wrote: Tue Oct 30, 2018 5:42 pm
grok87 wrote: Tue Oct 30, 2018 5:04 pm I’m late to this thread. Any concerns about total international and all world ex us as tax loss harvesting partners? I thought vanguard was saying that was a wash sale?

See this thread
viewtopic.php?f=2&t=262085
No. All World ex-US does not include small caps. Total Int’l does.
Thanks for your response. Yes I am aware of that.

But the poster in the thread I linked said vanguard had flagged such an exchange as a potential wash sale.
RIP Mr. Bogle.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

grok87 wrote: Tue Oct 30, 2018 5:47 pm But the poster in the thread I linked said vanguard had flagged such an exchange as a potential wash sale.
I didn't see that. I think the upshot was that something else was the wash.
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by grok87 »

Earl Lemongrab wrote: Tue Oct 30, 2018 7:00 pm
grok87 wrote: Tue Oct 30, 2018 5:47 pm But the poster in the thread I linked said vanguard had flagged such an exchange as a potential wash sale.
I didn't see that. I think the upshot was that something else was the wash.
thanks
RIP Mr. Bogle.
JustinR
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by JustinR »

JustinR wrote: Mon Oct 29, 2018 1:56 pm
MathIsMyWayr wrote: Sat Oct 20, 2018 7:37 pm
JustinR wrote: Sat Oct 20, 2018 4:03 pm Thank you for this excellent guide.

Two questions:

1) Do online tax preparation sites like TurboTax and TaxAct make recording tax losses, and tax losses rolled over from previous years, easy?

2) You're lowering your cost basis, which means you'll pay more on taxes later on right? This is still a net gain since you're saving on income tax while paying long-term capital gains tax. Am I correct?
2) Yes. Assume you take advantage of TLH, e.g., $100. Your cash will increase by $100 minus tax, e.g., $71, through tax saving. You may also invest $71 which will grow over time. The tax basis of the replacement investment is lowered by $100 which is a fixed amount. You may have to pay a CG tax on $100 when you dispose of the investment. TLH will be a net gain.
Assuming your tax is 29%, doesn't your cash increase by $29, not $71?

So if you TLH $3000, you're saving $870 (now).
Bumping my question. I just want to make sure I'm understanding correctly.
MathIsMyWayr
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by MathIsMyWayr »

JustinR wrote: Mon Oct 29, 2018 1:56 pm
MathIsMyWayr wrote: Sat Oct 20, 2018 7:37 pm
JustinR wrote: Sat Oct 20, 2018 4:03 pm Thank you for this excellent guide.

Two questions:

1) Do online tax preparation sites like TurboTax and TaxAct make recording tax losses, and tax losses rolled over from previous years, easy?

2) You're lowering your cost basis, which means you'll pay more on taxes later on right? This is still a net gain since you're saving on income tax while paying long-term capital gains tax. Am I correct?
2) Yes. Assume you take advantage of TLH, e.g., $100. Your cash will increase by $100 minus tax, e.g., $71, through tax saving. You may also invest $71 which will grow over time. The tax basis of the replacement investment is lowered by $100 which is a fixed amount. You may have to pay a CG tax on $100 when you dispose of the investment. TLH will be a net gain.
Assuming your tax is 29%, doesn't your cash increase by $29, not $71?

So if you TLH $3000, you're saving $870 (now).
Sorry, I picked a wrong number. You only save on a would-be-tax by TLH, $29. All the financial maneuvering is zero-sum. In the case of TLH, you gain at the expense of the tax collectors.
greenbogle
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by greenbogle »

Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
Many thanks for posting this. Please guide if there is a similar tutorial on how to do TLH for funds in taxable/brokerage accounts with TIAA-CREF.
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PhysicianOnFIRE
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

greenbogle wrote: Tue Dec 25, 2018 7:24 pm
Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
Many thanks for posting this. Please guide if there is a similar tutorial on how to do TLH for funds in taxable/brokerage accounts with TIAA-CREF.
I just published one for Fidelity users on the same site. While the screenshots will look different at TIAA-CREF than Fidelity or Vanguard, if you understand the concepts, you should be able to work your way through it. The tutorials make it seem more complicated than it is.

All you're really doing is selling one fund and buying another similar fund. If you know how to buy and sell (or do both simultaneously with an exchange), you already know what to do.

:beer
-PoF
greenbogle
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by greenbogle »

Thank you.

Reason I asked to see if any one has experience doing TLH with TIAA-CREF is
(1) "Currently, TIAA doesn’t offer tax-loss harvesting." https://smartasset.com/financial-adviso ... lio-Review
(2) TLH is available only for those who select Client Preference as mentioned in "Advice & Planning Services Portfolio Advisor Wrap Fee Program Disclosure Brochure Form ADV Part 2A".

So, just wondering if TLH is available or not available to regular folks having a taxable/brokerage account with TIAS-CREF.
livesoft
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by livesoft »

^I'll guess those notes from TIAA have to do with whether one can pay an advisor to do the fiduciary thing and do some smart TLHing like some other firms sell as a service. Those notes would not apply to an investor doing TLH by themselves without advice from the TIAA sales rep.
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PhysicianOnFIRE
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

greenbogle wrote: Wed Dec 26, 2018 2:59 pm Thank you.

Reason I asked to see if any one has experience doing TLH with TIAA-CREF is
(1) "Currently, TIAA doesn’t offer tax-loss harvesting." https://smartasset.com/financial-adviso ... lio-Review
(2) TLH is available only for those who select Client Preference as mentioned in "Advice & Planning Services Portfolio Advisor Wrap Fee Program Disclosure Brochure Form ADV Part 2A".

So, just wondering if TLH is available or not available to regular folks having a taxable/brokerage account with TIAS-CREF.
Maybe Automated or Advisor-initiated TLH isn't available to you, but if you can buy and sell specific lots, TLH is certainly available. They've been required to track your cost basis since 2011, and I am sure there's a way to select how lots are sold in the account. I'm just not familiar with the platform.

:beer
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

Follow up question.

I have dividend from Total Stock Market (which I believe are 95% QDI). Will the TLH first offset the dividends and then whats left comes off your income?

I understand for me if I did not TLH I would pay 15% taxes on the QDI?


Also, wife has Calvert SP500 in her 401k. If I sell Vangaurd Total stock and purchase the Vanguard SP500 in our taxed account will this create a wash sale?
blackburnian
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by blackburnian »

greenbogle wrote: ↑Wed Dec 26, 2018 3:59 pm
Reason I asked to see if any one has experience doing TLH with TIAA-CREF is
(1) "Currently, TIAA doesn’t offer tax-loss harvesting." https://smartasset.com/financial-adviso ... lio-Review
(2) TLH is available only for those who select Client Preference as mentioned in "Advice & Planning Services Portfolio Advisor Wrap Fee Program Disclosure Brochure Form ADV Part 2A".

So, just wondering if TLH is available or not available to regular folks having a taxable/brokerage account with TIAS-CREF.
I have a TIAA taxable account, and the difficulty with it is that you cannot access unrealized losses online the way you can with a Vanguard account. So unless you have kept careful track of the prices of the lots you bought, it's impossible to tell which funds have losses and how much they are. (I've had my account for over 20 years with automatic reinvestment of dividends--now turned off--so I probably have hundreds of lots). When I wanted to find out what my gains would be from selling a fund, I had to call a TIAA representative to find out. I am gradually selling off funds from this account because of these difficulties.
So you could theoretically TLH yourself by selling and buying funds in your account, but first you will need to find out what the losses are. Also I don't think you can pick individual lots (you have to pick a method for which lots are sold--high cost, first in first out, etc.)
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Earl Lemongrab
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

indexonlyplease wrote: Sat Dec 29, 2018 8:11 am I have dividend from Total Stock Market (which I believe are 95% QDI). Will the TLH first offset the dividends and then whats left comes off your income?
Dividends are not capital gains and have no relationship to losses.
Also, wife has Calvert SP500 in her 401k. If I sell Vangaurd Total stock and purchase the Vanguard SP500 in our taxed account will this create a wash sale?
This is controversial. Some like me don't think so. Others disagree. See this for discussion. Opposing position follows.

viewtopic.php?f=1&t=264203#p4225913
yogesh
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by yogesh »

Thank you PhysicianOnFire, It was useful even at fidelity.

Total Stock Market / S&P 500 / Large Cap Index
FZROX/FSKAX, FXAIX, FNILX

Total International / All-World Ex-US / Developed Market
FTIHX, FZILX/FSGGX, FSPSX

Small Cap Index / Mid Cap Index / Extended Market
FSSNX, FSMDX, FSMAX

https://www.fidelity.com/mutual-funds/f ... ndex-funds


-
Last edited by yogesh on Sun Dec 30, 2018 12:38 am, edited 1 time in total.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040
indexonlyplease
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by indexonlyplease »

Earl Lemongrab wrote: Sat Dec 29, 2018 11:59 am
indexonlyplease wrote: Sat Dec 29, 2018 8:11 am I have dividend from Total Stock Market (which I believe are 95% QDI). Will the TLH first offset the dividends and then whats left comes off your income?
Dividends are not capital gains and have no relationship to losses.
Also, wife has Calvert SP500 in her 401k. If I sell Vangaurd Total stock and purchase the Vanguard SP500 in our taxed account will this create a wash sale?
This is controversial. Some like me don't think so. Others disagree. See this for discussion. Opposing position follows.

viewtopic.php?f=1&t=264203#p4225913
So this would mean I still pay 15% on my 95% dividend (22% tax bracket). Then 3k would come off my income. Saving me around $660 in taxes?
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Earl Lemongrab
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by Earl Lemongrab »

indexonlyplease wrote: Sat Dec 29, 2018 12:24 pm So this would mean I still pay 15% on my 95% dividend (22% tax bracket). Then 3k would come off my income. Saving me around $660 in taxes?
Yes, plus possibly state income tax. I suggest anyone interested in TLH get a copy of Schedule D and work through it by hand with some numbers.
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PhysicianOnFIRE
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by PhysicianOnFIRE »

yogesh wrote: Sat Dec 29, 2018 12:07 pm Thank you PhysicianOnFire, It was useful even at fidelity.

Total Stock Market / S&P 500 / Large Cap Index
FZROX, FXAIX, FNILX

Total International / All-World Ex-US / Developed Market
FTIHX, FZILX/FSGGX, FSPSX

Small Cap Index / Mid Cap Index / Extended Market
FSSNX, FSMDX, FSMAX

https://www.fidelity.com/mutual-funds/f ... ndex-funds


-
I recently did some TLH from FKSAX to FZROX and from FTIHX to FZILX, taking screenshots and publishing a step-by-step guide for Fidelity users. It looks a lot different than it does at Vanguard, but the steps are pretty much the same. One thing I learned is that "Sell specific shares" is always an option regardless of your default cost basis selection at Fidelity.

:beer
-PoF
masthasina
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Re: PhysicianOnFire blog: "Tax Loss Harvesting with Vanguard: A Step by Step Guide"

Post by masthasina »

Taylor Larimore wrote: Sat Oct 20, 2018 10:47 am Bogleheads:

The Physician on Fire website alerted me to this excellent step-by-step guide written by Vanguard about Tax-Loss Harvesting:

Tax Loss Harvesting with Vanguard: A Step by Step Guide

Best wishes.
Taylor
Thank you Taylor!
I performed my first TLH harvest on Apr 1, 2020. Your post was super helpful!

Just one thing to restate for the wider community from: https://obliviousinvestor.com/tax-loss-harvesting/
"Note, however, that you do not need to worry about wash sales if you liquidate all of your shares of a given investment and you do not repurchase substantially identical securities within 30 days.

Example: On January 1, Lucy buys 100 shares of Vanguard Total Stock Market ETF in her brokerage account, at a price of $60 per share. On January 10, Lucy sells her 100 shares for $55 per share, and she does not purchase substantially identical securities in any of her accounts within the next 30 days. Lucy will be able to claim her loss of $5 per share, despite the fact that a purchase occurred within 30 days prior to the sale. "
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