Help with Tax loss harvesting

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Help with Tax loss harvesting

Post by Jimsad » Tue Oct 23, 2018 4:39 am

Hi everybody .
I need some help with tax loss harvesting
I have losses in total international stock fund at vanguard .
I tried to sell some shares to harvest losses and exchange to all world ex US fund .
I was told by vanguard this may be a wash sale and to avoid it , I have to sell the international fund shares first and let them sit in settlement fund for 30 days and then buy the all world ex US fund .
Does this sound correct ?

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Help with Tax loss harvesting

Post by ivk5 » Tue Oct 23, 2018 5:18 am

Jimsad wrote:
Tue Oct 23, 2018 4:39 am
I tried to sell some shares to harvest losses and exchange to all world ex US fund .
I was told by vanguard this may be a wash sale and to avoid it , I have to sell the international fund shares first and let them sit in settlement fund for 30 days and then buy the all world ex US fund .
Does this sound correct ?
No.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Tue Oct 23, 2018 5:23 am

So can I go ahead and Exchange to all world ex US without triggering a wash sale ?

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Help with Tax loss harvesting

Post by ivk5 » Tue Oct 23, 2018 5:39 am

Jimsad wrote:
Tue Oct 23, 2018 5:23 am
So can I go ahead and Exchange to all world ex US without triggering a wash sale ?
Nobody can tell you with certainty because the IRS hasn't given much guidance on how to understand what "substantially identical" means in the context of index funds. Most here believe that funds tracking different indices cannot be "substantially identical", and we are not aware of any instances of the IRS taking a contrary position in an audit.

From "Tax-Loss Harvesting: The Rebalancing Act" in the Journal of Financial Planning (HT: iceport):
https://www.onefpa.org/journal/Pages/Tax-Loss%20Harvesting%20The%20Rebalancing%20Act.aspx wrote:The lack of clear direction from the IRS regarding mutual funds and the wash sale rule has led many investment advisors to develop a working list of transactions that are generally considered to be acceptable under the wash sale rule contained in Section 1091. For example, a tax-loss swap from one S&P 500 Index fund to another S&P 500 Index fund managed by a different fund company (as described above) may raise a red flag at the IRS. However, if the new fund tracks another large capitalization index, such as the Russell 1000, the tax loss should be allowed.

The following is a list of mutual fund transactions that are generally considered to be acceptable under the wash sale rules contained in Section 1091 despite the lack of a concrete definition of "substantially identical security":
  1. Sell one index fund and buy another index fund, if the indexes of the two funds are not the same index (e.g., S&P 500 for the Russell 1000).
  2. Sell one actively managed fund and buy a fund at another company with different portfolio managers.
  3. Sell an index fund and buy an actively managed fund regardless of the fund company.
  4. Sell an actively managed fund and buy an index fund regardless of the fund company.
A couple notes:
  • Make sure you are using the Spec ID cost basis method and select the lots you want to sell at a loss
  • If you have bought shares of Vanguard's Total International Stock (funds or ETFs) within the last 30 days, make sure those are among the shares you TLH, otherwise those purchases will generate a wash sale
  • If you have bought shares of Total International Stock in traditional/Roth IRA accounts, within the past 30 days, those purchases will also generate wash sales if you realize a loss now. That is more problematic since those disallowed losses are unrecoverable, unlike a disallowed loss in taxable which simply increases your cost basis in shares you still hold. We've recently debated in another thread whether selling the recently purchased IRA shares avoids the issue; my interpretation is that it does not.
There are many extensive TLH threads here that you might consider reviewing.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Tue Oct 23, 2018 6:09 am

Thanks for your reply .
I am following the steps you mentioned . However the last point you mentioned surprised me .
I am planning on doing tax loss harvesting in the taxable account .
I was not aware that the transactions in the IRA account might cause wash sale too . I thought that you cannot do tax loss harvesting in IRAs ; so why should any transactions in these IRA account have any effect on tax loss harvesting in taxable account ? Even the vanguard flagship rep did not mention the above .

livesoft
Posts: 62838
Joined: Thu Mar 01, 2007 8:00 pm

Re: Help with Tax loss harvesting

Post by livesoft » Tue Oct 23, 2018 6:20 am

Jimsad wrote:
Tue Oct 23, 2018 6:09 am
Thanks for your reply .
I am following the steps you mentioned . However the last point you mentioned surprised me .
I am planning on doing tax loss harvesting in the taxable account .
I was not aware that the transactions in the IRA account might cause wash sale too . I thought that you cannot do tax loss harvesting in IRAs ; so why should any transactions in these IRA account have any effect on tax loss harvesting in taxable account ? Even the vanguard flagship rep did not mention the above .
Yes, IRA transactions affect tax-loss harvesting in a taxable account. This is right there in IRS Publication 550 where some of the rules are given. There are other places where the rules are discussed for more information.
Wiki This signature message sponsored by sscritic: Learn to fish.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Tue Oct 23, 2018 6:27 am

Thanks for your reply .
The taxable account I am trying to do the tax loss harvesting is a family partnership (LLLP) account .
The IRA accounts are also at vanguard but in my name and not in LLLP name .
Will the transactions in the IRA account still affect the tax loss harvesting in the LLLP account ? I am thinking it may not as they are different types of accounts

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Help with Tax loss harvesting

Post by ivk5 » Tue Oct 23, 2018 7:46 am

Jimsad wrote:
Tue Oct 23, 2018 6:27 am
The taxable account I am trying to do the tax loss harvesting is a family partnership (LLLP) account .
The IRA accounts are also at vanguard but in my name and not in LLLP name .
Will the transactions in the IRA account still affect the tax loss harvesting in the LLLP account ? I am thinking it may not as they are different types of accounts
I don't know whether there is potential for wash sale between a partnership account and an individual account belonging to a general partner of the partnership. I would not chance it myself since it seems contrary to the spirit of the rule, and contrary to the general reasoning of Rev. Rul. 2008-05 which established the IRA principle in the first place.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Tue Oct 23, 2018 8:02 am

Jimsad wrote:
Tue Oct 23, 2018 4:39 am
Hi everybody .
I need some help with tax loss harvesting
I have losses in total international stock fund at vanguard .
I tried to sell some shares to harvest losses and exchange to all world ex US fund .
I was told by vanguard this may be a wash sale and to avoid it , I have to sell the international fund shares first and let them sit in settlement fund for 30 days and then buy the all world ex US fund .
Does this sound correct ?
No. FTSE All-World ex-US does not include small caps (there is a separate FTSE All-World ex-US Small-Cap), while Total International includes small caps. Far from substantially identical.

The Bogleheads wiki article on wash sales quotes from IRS pub 550: https://www.bogleheads.org/wiki/Wash_sale
If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Wed Oct 24, 2018 5:26 am

Good Morning -
I am ready to tax loss harvest the total international fund
- stopped divedend reinvestment
- stopped automatic contributions for next 2 months into the fund
-Changed cost basis to spec ID
- did above in all taxable and Ira accounts for this fund

Anything else I am missing before I pull the trigger ?

Also I want to tax loss harvest limited term tax exempt and total bond funds in taxable account next .
Are all steps similar or any thing different I should do?

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Wed Oct 24, 2018 7:09 am

Jimsad wrote:
Wed Oct 24, 2018 5:26 am
Good Morning -
I am ready to tax loss harvest the total international fund
- stopped divedend reinvestment
- stopped automatic contributions for next 2 months into the fund
-Changed cost basis to spec ID
- did above in all taxable and Ira accounts for this fund

Anything else I am missing before I pull the trigger ?

Also I want to tax loss harvest limited term tax exempt and total bond funds in taxable account next .
Are all steps similar or any thing different I should do?
Looks fine.

Nothing more to consider for those bond funds since dividends are declared daily.

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Help with Tax loss harvesting

Post by ivk5 » Wed Oct 24, 2018 7:11 am

Jimsad wrote:
Wed Oct 24, 2018 5:26 am
- stopped divedend reinvestment
- stopped automatic contributions for next 2 months into the fund
Make sure you've checked the date of the last dividend reinvestment or automated contribution in all relevant accounts. If it is within the last 30 days and you are not selling those lots as part of the TLH, you will still have partial wash sale.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Wed Oct 24, 2018 3:37 pm

Thank you all for your replies .
I now have to decide whether to exchange to all world except us fund or sell it to deposit In settlement fund .
Vanguard rep says not sure the first option would not trigger wash sale

3-20Characters
Posts: 101
Joined: Tue Jun 19, 2018 2:20 pm

Re: Help with Tax loss harvesting

Post by 3-20Characters » Wed Oct 24, 2018 3:56 pm

ivk5 wrote:
Wed Oct 24, 2018 7:11 am
Jimsad wrote:
Wed Oct 24, 2018 5:26 am
- stopped divedend reinvestment
- stopped automatic contributions for next 2 months into the fund
Make sure you've checked the date of the last dividend reinvestment or automated contribution in all relevant accounts. If it is within the last 30 days and you are not selling those lots as part of the TLH, you will still have partial wash sale.
^ This. I just did this exact thing (same funds) as OP is attempting and got no message. I have dividend reinvestment turned off in all accounts (including tax advantaged).

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Wed Oct 24, 2018 4:00 pm

You mean you did not get any message saying it was a wash sale?

3-20Characters
Posts: 101
Joined: Tue Jun 19, 2018 2:20 pm

Re: Help with Tax loss harvesting

Post by 3-20Characters » Wed Oct 24, 2018 4:03 pm

Jimsad wrote:
Wed Oct 24, 2018 4:00 pm
You mean you did not get any message saying it was a wash sale?
Correct! It sounds as if you are triggering a wash sale (or partial) due to reinvested dividends in tax advantaged.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Wed Oct 24, 2018 4:10 pm

I did not do the TLH yet . Plan to do it on Friday when it will be 31 days down last divindend reinvestment .
It is just that the vanguard rep said they cannot guarantee that it will be ok as they cannot be That specific

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Wed Oct 24, 2018 6:41 pm

Jimsad wrote:
Tue Oct 23, 2018 6:09 am
I was not aware that the transactions in the IRA account might cause wash sale too . I thought that you cannot do tax loss harvesting in IRAs ; so why should any transactions in these IRA account have any effect on tax loss harvesting in taxable account ? Even the vanguard flagship rep did not mention the above .
You can read all about it in the IRS Revenue Ruling:

https://www.irs.gov/pub/irs-drop/rr-08-05.pdf

The upshot is that they don't want you to sell a security in taxable at a loss and buy the same thing in an IRA. It's worse than a wash in taxable. Then you just adjust the basis of the replacement shares. In an IRA, there is no basis so the loss is "lost".
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Wed Oct 24, 2018 8:11 pm

I read on another thread about 529 accounts in this respect .
I do have 529 accounts at vanguard for my kids . Some of them have the total international fund .
Do I have to do the same manoeuvres for the 529 account that I did for my taxable and Ira accounts with respect to the total international fund? It never occurred to me I have to do this for the 529 funds but One of the other threads seems to suggest this? .
I am confused .

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Wed Oct 24, 2018 8:29 pm

Jimsad wrote:
Wed Oct 24, 2018 8:11 pm
I read on another thread about 529 accounts in this respect .
I do have 529 accounts at vanguard for my kids . Some of them have the total international fund .
Do I have to do the same manoeuvres for the 529 account that I did for my taxable and Ira accounts with respect to the total international fund? It never occurred to me I have to do this for the 529 funds but One of the other threads seems to suggest this? .
I am confused .
The IRS has not specifically called out 529's as being included in wash sale rules, but they haven't specifically ruled it out either. The general wording in the regulations and the fact that they included accounts for your spouse and for corporations you control in the text, would seem to indicate that would include 529 accounts that you control.

That is why it is easier to not have the same funds in taxable as all your other accounts. For example, use an age-based fund in a 529. In my 529 there are no specific dividends, which makes things easier.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Wed Oct 24, 2018 11:25 pm

Jimsad wrote:
Wed Oct 24, 2018 8:11 pm
I read on another thread about 529 accounts in this respect .
I do have 529 accounts at vanguard for my kids . Some of them have the total international fund .
Do I have to do the same manoeuvres for the 529 account that I did for my taxable and Ira accounts with respect to the total international fund? It never occurred to me I have to do this for the 529 funds but One of the other threads seems to suggest this? .
Absolutely nothing in the IRS regulations about any other tax-advantaged accounts except for IRAs.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Wed Oct 24, 2018 11:28 pm

rkhusky wrote:
Wed Oct 24, 2018 8:29 pm
The IRS has not specifically called out 529's as being included in wash sale rules, but they haven't specifically ruled it out either. The general wording in the regulations and the fact that they included accounts for your spouse and for corporations you control in the text, would seem to indicate that would include 529 accounts that you control.
I strongly disagree. The spousal accounts you mention are called out in the regulations, not an "oh yeah you should have figured we meant those too". If they meant 529 accounts, they'd say so. It's not up to the taxpayers to come up with their own rules.

What next, include these accounts in pro-rata calculations for IRA conversions? Sure, it only says IRAs . . . .
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

3-20Characters
Posts: 101
Joined: Tue Jun 19, 2018 2:20 pm

Re: Help with Tax loss harvesting

Post by 3-20Characters » Thu Oct 25, 2018 3:32 am

Earl Lemongrab wrote:
Wed Oct 24, 2018 11:25 pm
Jimsad wrote:
Wed Oct 24, 2018 8:11 pm
I read on another thread about 529 accounts in this respect .
I do have 529 accounts at vanguard for my kids . Some of them have the total international fund .
Do I have to do the same manoeuvres for the 529 account that I did for my taxable and Ira accounts with respect to the total international fund? It never occurred to me I have to do this for the 529 funds but One of the other threads seems to suggest this? .
Absolutely nothing in the IRS regulations about any other tax-advantaged accounts except for IRAs.
Interesting. Does “IRAs” also include SEP IRAs? I treat all our accounts as if they could trigger wash sales. IMO, it’s easier to just set up all accounts this way from the get go (use appropriate funds, do not reinvest dividends, etc.).

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Thu Oct 25, 2018 5:47 am

I would be interested in hearing from anyone who actually had a wash sale because of holdings in 529 accounts .

leftcoaster
Posts: 341
Joined: Mon Jul 23, 2007 4:04 pm

Re: Help with Tax loss harvesting

Post by leftcoaster » Thu Oct 25, 2018 6:01 am

I also want to TLH total international.

I have many lots of this fund. I know that if I bought less than 30 days ago, I could have a wash sale.

Is this still true if I sell all shares purchased in the thirty day period?

Example:

BUY lot 1 in June
BUY lot 2 in October
SELL lot 2 five days later for a loss

Is there a wash sale on lot 2? Or only if I held on to some of it (or a third lot also purchased in the 30 day window)?

ivk5
Posts: 479
Joined: Thu Sep 22, 2016 9:05 am

Re: Help with Tax loss harvesting

Post by ivk5 » Thu Oct 25, 2018 6:05 am

leftcoaster wrote:
Thu Oct 25, 2018 6:01 am
I also want to TLH total international.

I have many lots of this fund. I know that if I bought less than 30 days ago, I could have a wash sale.

Is this still true if I sell all shares purchased in the thirty day period?

Example:

BUY lot 1 in June
BUY lot 2 in October
SELL lot 2 five days later for a loss

Is there a wash sale on lot 2? Or only if I held on to some of it (or a third lot also purchased in the 30 day window)?
The latter- no wash sale on lot 2 unless you hold onto some of it (or if you bought other lots in applicable accounts, including IRA/Roth/spouse, within the time window, which is 61 days centered on trade date of sale).

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Thu Oct 25, 2018 7:12 am

Earl Lemongrab wrote:
Wed Oct 24, 2018 11:28 pm
rkhusky wrote:
Wed Oct 24, 2018 8:29 pm
The IRS has not specifically called out 529's as being included in wash sale rules, but they haven't specifically ruled it out either. The general wording in the regulations and the fact that they included accounts for your spouse and for corporations you control in the text, would seem to indicate that would include 529 accounts that you control.
I strongly disagree. The spousal accounts you mention are called out in the regulations, not an "oh yeah you should have figured we meant those too". If they meant 529 accounts, they'd say so. It's not up to the taxpayers to come up with their own rules.

What next, include these accounts in pro-rata calculations for IRA conversions? Sure, it only says IRAs . . . .
From IRS Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA."
I don't see where it says that only IRA's are included in wash sale rules. In fact, number 1 seems all inclusive. Just because number 4 seems redundant with number 1 doesn't mean anything. Perhaps 2-4 are only examples of number 1 or are only cases where the IRS has specifically ruled or encountered.

Revenue Ruling 2008-05 only addressed IRA's and specifically said not to read anything further into the ruling.

In the end, in the absence of specific guidance, taxpayers needs to decide for themselves what the text means and how close to the boundary they want to be.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Thu Oct 25, 2018 10:44 am

rkhusky wrote:
Thu Oct 25, 2018 7:12 am
I don't see where it says that only IRA's are included in wash sale rules. In fact, number 1 seems all inclusive. Just because number 4 seems redundant with number 1 doesn't mean anything. Perhaps 2-4 are only examples of number 1 or are only cases where the IRS has specifically ruled or encountered.
It doesn't say "or similar tax-advantaged accounts" or ANYTHING that would lead the taxpayer to believe that they should include such accounts.
Revenue Ruling 2008-05 only addressed IRA's and specifically said not to read anything further into the ruling.
Yet here you are reading into it that you should include 529s.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Nate79
Posts: 3708
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Help with Tax loss harvesting

Post by Nate79 » Thu Oct 25, 2018 11:18 am

If any accounts besides taxable and IRAs would be included in wash sales by the IRS it would be a SIGNIFICANT legal event, likely to be challenged. People can continue to make up rules as they wish but this is not something in my book that is a gray area.

grok87
Posts: 8501
Joined: Tue Feb 27, 2007 9:00 pm

Re: Help with Tax loss harvesting

Post by grok87 » Thu Oct 25, 2018 11:23 am

Nate79 wrote:
Thu Oct 25, 2018 11:18 am
If any accounts besides taxable and IRAs would be included in wash sales by the IRS it would be a SIGNIFICANT legal event, likely to be challenged. People can continue to make up rules as they wish but this is not something in my book that is a gray area.
Interesting
Keep calm and Boglehead on. KCBO.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Thu Oct 25, 2018 11:29 am

Nate79 wrote:
Thu Oct 25, 2018 11:18 am
If any accounts besides taxable and IRAs would be included in wash sales by the IRS it would be a SIGNIFICANT legal event, likely to be challenged. People can continue to make up rules as they wish but this is not something in my book that is a gray area.
Exactly. Were're not talking about a weird corner case. A high percentage of taxpayers have a workplace plan, a 529, or both. It's just not how the IRS has handled these things in the past.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Thu Oct 25, 2018 5:01 pm

Earl Lemongrab wrote:
Thu Oct 25, 2018 10:44 am
Revenue Ruling 2008-05 only addressed IRA's and specifically said not to read anything further into the ruling.
Yet here you are reading into it that you should include 529s.
I am doing nothing of the kind. Revenue Ruling 2008-05 only addressed IRA's. It said nothing about 401K's or 529's. It is totally irrelevant to those accounts.

Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

is what leads me to include 529's and 401K's, when the IRS has not said a single word on those accounts being exempted.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Thu Oct 25, 2018 5:05 pm

Nate79 wrote:
Thu Oct 25, 2018 11:18 am
If any accounts besides taxable and IRAs would be included in wash sales by the IRS it would be a SIGNIFICANT legal event, likely to be challenged. People can continue to make up rules as they wish but this is not something in my book that is a gray area.
Why would it be? Pub 550 is perfectly clear on the issue:
Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

Would it be a significant legal issue because a number of people have been trying to read between the lines and are hoping that they are right, without any indication from the IRS that their interpretation is correct?

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Thu Oct 25, 2018 5:41 pm

rkhusky wrote:
Thu Oct 25, 2018 5:01 pm
Earl Lemongrab wrote:
Thu Oct 25, 2018 10:44 am
Revenue Ruling 2008-05 only addressed IRA's and specifically said not to read anything further into the ruling.
Yet here you are reading into it that you should include 529s.
I am doing nothing of the kind. Revenue Ruling 2008-05 only addressed IRA's. It said nothing about 401K's or 529's. It is totally irrelevant to those accounts.
So, as those aren't mentioned anywhere in the regulations, why would you think these would be included. Why would this revenue ruling have been necessary if it was obvious that other accounts besides the ones mentioned were implicitly included?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Thu Oct 25, 2018 5:42 pm

rkhusky wrote:
Thu Oct 25, 2018 5:05 pm
Nate79 wrote:
Thu Oct 25, 2018 11:18 am
If any accounts besides taxable and IRAs would be included in wash sales by the IRS it would be a SIGNIFICANT legal event, likely to be challenged. People can continue to make up rules as they wish but this is not something in my book that is a gray area.
Why would it be? Pub 550 is perfectly clear on the issue:
Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

Would it be a significant legal issue because a number of people have been trying to read between the lines and are hoping that they are right, without any indication from the IRS that their interpretation is correct?
If it were as simple as that, they wouldn't need to mention any sort of other accounts. Yet they do.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Thu Oct 25, 2018 8:37 pm

Earl Lemongrab wrote:
Thu Oct 25, 2018 5:41 pm
rkhusky wrote:
Thu Oct 25, 2018 5:01 pm
Earl Lemongrab wrote:
Thu Oct 25, 2018 10:44 am
Revenue Ruling 2008-05 only addressed IRA's and specifically said not to read anything further into the ruling.
Yet here you are reading into it that you should include 529s.
I am doing nothing of the kind. Revenue Ruling 2008-05 only addressed IRA's. It said nothing about 401K's or 529's. It is totally irrelevant to those accounts.
So, as those aren't mentioned anywhere in the regulations, why would you think these would be included. Why would this revenue ruling have been necessary if it was obvious that other accounts besides the ones mentioned were implicitly included?
Because someone challenged an IRS ruling involving an IRA wash sale?

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Thu Oct 25, 2018 11:37 pm

rkhusky wrote:
Thu Oct 25, 2018 8:37 pm
Earl Lemongrab wrote:
Thu Oct 25, 2018 5:41 pm
So, as those aren't mentioned anywhere in the regulations, why would you think these would be included. Why would this revenue ruling have been necessary if it was obvious that other accounts besides the ones mentioned were implicitly included?
Because someone challenged an IRS ruling involving an IRA wash sale?
Do you have some evidence of that? It's not anything I've ever heard.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Fri Oct 26, 2018 6:26 am

Earl Lemongrab wrote:
Thu Oct 25, 2018 11:37 pm
rkhusky wrote:
Thu Oct 25, 2018 8:37 pm
Earl Lemongrab wrote:
Thu Oct 25, 2018 5:41 pm
So, as those aren't mentioned anywhere in the regulations, why would you think these would be included. Why would this revenue ruling have been necessary if it was obvious that other accounts besides the ones mentioned were implicitly included?
Because someone challenged an IRS ruling involving an IRA wash sale?
Do you have some evidence of that? It's not anything I've ever heard.
I dunno. Why does the IRS issue rulings like that? Because someone asked them about it? Just out of the blue? Does it really matter? They issued it and it says what it says - IRA accounts are included in wash sales and nothing further should be inferred from the ruling.

Chip
Posts: 2366
Joined: Wed Feb 21, 2007 4:57 am

Re: Help with Tax loss harvesting

Post by Chip » Fri Oct 26, 2018 6:51 am

rkhusky wrote:
Thu Oct 25, 2018 5:05 pm
Why would it be? Pub 550 is perfectly clear on the issue:
Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

Would it be a significant legal issue because a number of people have been trying to read between the lines and are hoping that they are right, without any indication from the IRS that their interpretation is correct?
I think you left out some important context from Pub 550. Here is the ENTIRE section from which you selectively quoted:

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,

2. Acquire substantially identical stock or securities in a fully taxable trade,

3. Acquire a contract or option to buy substantially identical stock or securities, or

4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.


I personally would infer from point 4 that points 1-3 refer to taxable account transactions. If 1-3 applied to all accounts controlled by the taxpayer point 4 would be redundant, unnecessary and confusing. Plus it would have been simple to add "401k" and "403b" to the IRAs listed in point 4. But the IRS didn't. I consider that significant.

Others may differ with my interpretation.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Fri Oct 26, 2018 12:40 pm

Chip wrote:
Fri Oct 26, 2018 6:51 am
rkhusky wrote:
Thu Oct 25, 2018 5:05 pm
Why would it be? Pub 550 is perfectly clear on the issue:
Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

Would it be a significant legal issue because a number of people have been trying to read between the lines and are hoping that they are right, without any indication from the IRS that their interpretation is correct?
I think you left out some important context from Pub 550. Here is the ENTIRE section from which you selectively quoted:
Selected for brevity, see above viewtopic.php?p=4183978#p4182375
Chip wrote:
Fri Oct 26, 2018 6:51 am
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,

2. Acquire substantially identical stock or securities in a fully taxable trade,

3. Acquire a contract or option to buy substantially identical stock or securities, or

4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.


I personally would infer from point 4 that points 1-3 refer to taxable account transactions. If 1-3 applied to all accounts controlled by the taxpayer point 4 would be redundant, unnecessary and confusing. Plus it would have been simple to add "401k" and "403b" to the IRAs listed in point 4. But the IRS didn't. I consider that significant.
Note that line 4 did not appear in Pub 550 until the 2008 version, after Revenue Ruling 2008-05 was issued. Note also that line 4 is missing the word "securities". Is this significant and the purchase of mutual funds or bonds is not counted in IRA's, just stocks? Or might the IRS have had a misprint in the publication? Perhaps then they could also be forgiven a redundancy in the text as well, where they just added line 4 to Pub 550 in the simplest way, so as to include the opinion in Revenue Ruling 2008-05, which only addressed IRA's, not 529's or 401k's, for whatever reason.

Note that the basis for the ruling in Revenue Ruling 2008-05 is a 1933 case where a trust purchased bonds, where a capital loss was incurred on substantially identical bonds sold in a taxable account owned by someone who controlled the trust. This was determined to be a wash sale. On that basis, the IRS determined that purchases in an IRA could also cause wash sales.
In Security First National Bank of Los Angeles, 28 BTA 289 (1933), the taxpayer sold bonds (at a market price) to a corporation of which the taxpayer was the sole shareholder. On the same day, in exchange for land, the corporation transferred the same bonds at the same price to a trust over which the taxpayer had absolute dominion and control. In finding that § 214(a)(5), the predecessor to § 1091(a), applied to disallow the loss, the court reasoned as follows:

The [taxpayer] did not personally reacquire substantially identical property and, strictly construed, the language of section 214(a)(5), above referred to, might not apply. However, the rule of strict construction should not be unduly pressed to permit easy evasion of a taxing statute. Carbon Steel Co. v. Lewellyn, 251 U.S. 501. Unless the respondent is right, a trust like this one could be used deliberately to accomplish the very thing which Congress intended to frustrate. ... Although title to the bonds was acquired by the trust, actual command over the property was still in the [taxpayer]. ...The difference between acquisition by him personally and acquisition by the trust amounts only to a refinement of title and may be disregarded so far as section 214(a)(5) is concerned.

Security First National Bank, 28 BTA at 314 - 315.
Applying this reasoning to the facts of this ruling, even though an individual
retirement account is a tax-exempt trust, A has nevertheless acquired, for purposes of
§ 1091(a), 100 shares of X Company stock on December 21, 2007, by virtue of the
Purchase. See also Shoenberg v. Commissioner, 77 F. 2d 446 (8th Cir. 1935).

HOLDING
The loss on the Sale of stock is disallowed under § 1091. A’s basis in the individual retirement account or Roth IRA is not increased by virtue of § 1091(d). This ruling does not address any issues other than those specifically addressed herein. In particular, this ruling does not address (and no inference should be drawn with respect to) any issue arising under § 4975.
Note the language
Unless the respondent is right, a trust like this one could be used deliberately to accomplish the very thing which Congress intended to frustrate.
Absent further IRS elucidation, taxpayers will need to decide for themselves if purchases within a 529 or 401k are, or are not, trying to accomplish the very thing that Congress intended to frustrate with the wash sale rule.

MotoTrojan
Posts: 2583
Joined: Wed Feb 01, 2017 8:39 pm

Re: Help with Tax loss harvesting

Post by MotoTrojan » Fri Oct 26, 2018 12:46 pm

Jimsad wrote:
Wed Oct 24, 2018 4:10 pm
I did not do the TLH yet . Plan to do it on Friday when it will be 31 days down last divindend reinvestment .
It is just that the vanguard rep said they cannot guarantee that it will be ok as they cannot be That specific
I’ll guarantee it and pay you if the IRS comes hunting. They legally can’t give tax advise but this is a very common TLH partner.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Fri Oct 26, 2018 4:41 pm

rkhusky wrote:
Fri Oct 26, 2018 6:26 am
Earl Lemongrab wrote:
Thu Oct 25, 2018 11:37 pm
rkhusky wrote:
Thu Oct 25, 2018 8:37 pm
Earl Lemongrab wrote:
Thu Oct 25, 2018 5:41 pm
So, as those aren't mentioned anywhere in the regulations, why would you think these would be included. Why would this revenue ruling have been necessary if it was obvious that other accounts besides the ones mentioned were implicitly included?
Because someone challenged an IRS ruling involving an IRA wash sale?
Do you have some evidence of that? It's not anything I've ever heard.
I dunno. Why does the IRS issue rulings like that? Because someone asked them about it? Just out of the blue? Does it really matter? They issued it and it says what it says - IRA accounts are included in wash sales and nothing further should be inferred from the ruling.
Right. So why are you inferring that 401(k)s and 529s are included?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Fri Oct 26, 2018 5:08 pm

Earl Lemongrab wrote:
Fri Oct 26, 2018 4:41 pm
Right. So why are you inferring that 401(k)s and 529s are included?
Why wouldn't they be? The IRS has not exempted any other type of account. They've only listed a few that are included. For example, they don't list trusts in Pub 550. Yet it was the purchase inside a trust that was the basis for adding IRA's to the wash sale list in Revenue Ruling 2008-05. Insisting that the IRS list every type of account that is applicable to wash sale rules seems like quite a stretch.

Besides, Pub 550 is perfectly clear on the issue, so no inference needed:
Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Fri Oct 26, 2018 6:25 pm

rkhusky wrote:
Fri Oct 26, 2018 5:08 pm
Earl Lemongrab wrote:
Fri Oct 26, 2018 4:41 pm
Right. So why are you inferring that 401(k)s and 529s are included?
Why wouldn't they be? The IRS has not exempted any other type of account. They've only listed a few that are included. For example, they don't list trusts in Pub 550. Yet it was the purchase inside a trust that was the basis for adding IRA's to the wash sale list in Revenue Ruling 2008-05. Insisting that the IRS list every type of account that is applicable to wash sale rules seems like quite a stretch.
Because they saw the need to publish a Revenue Ruling and amend the publications to specifically include IRAs but NOT any other type accounts. If, as you claim, all other accounts were already included based on the existing regulations, then that was unnecessary.

To me a more reasonable interpretation is that the IRS did NOT include IRAs to that point. They decided it was a loophole to close, then researched and developed the RR to explicitly include IRAs from that point on. That RR included the phrasing to not apply to anything else. So to me the logical reading of the publications is "all of these taxable accounts where you adjust the basis as we describe, and as of 2008 IRAs as well." Nothing else. No 529s, no 401(k) and similar plans. If they meant those, they would have included them in the RR.

I don't think your interpretation is logical.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Fri Oct 26, 2018 8:45 pm

Earl Lemongrab wrote:
Fri Oct 26, 2018 6:25 pm
rkhusky wrote:
Fri Oct 26, 2018 5:08 pm
Earl Lemongrab wrote:
Fri Oct 26, 2018 4:41 pm
Right. So why are you inferring that 401(k)s and 529s are included?
Why wouldn't they be? The IRS has not exempted any other type of account. They've only listed a few that are included. For example, they don't list trusts in Pub 550. Yet it was the purchase inside a trust that was the basis for adding IRA's to the wash sale list in Revenue Ruling 2008-05. Insisting that the IRS list every type of account that is applicable to wash sale rules seems like quite a stretch.
Because they saw the need to publish a Revenue Ruling and amend the publications to specifically include IRAs but NOT any other type accounts. If, as you claim, all other accounts were already included based on the existing regulations, then that was unnecessary.

To me a more reasonable interpretation is that the IRS did NOT include IRAs to that point. They decided it was a loophole to close, then researched and developed the RR to explicitly include IRAs from that point on. That RR included the phrasing to not apply to anything else. So to me the logical reading of the publications is "all of these taxable accounts where you adjust the basis as we describe, and as of 2008 IRAs as well." Nothing else. No 529s, no 401(k) and similar plans. If they meant those, they would have included them in the RR.

I don't think your interpretation is logical.
The fact remains that the IRS has never explicitly excluded any type of account from wash sale rules. If they intended to exclude 401K's or 529's from Revenue Ruling 2008-005, they could have easily done so. If they intended for "1. Buy substantially identical stock or securities," to mean only taxable accounts, they could have easily said so. They even mentioned taxable transaction in "2. Acquire substantially identical stock or securities in a fully taxable trade". If they intended to give a complete list of accounts that wash sales apply to, they would have included trusts. Rather than trying to read something into the rules that isn't there, it would be more logical to take the text at face value.

User avatar
Earl Lemongrab
Posts: 5813
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with Tax loss harvesting

Post by Earl Lemongrab » Fri Oct 26, 2018 8:47 pm

Well, I don't hear anything new from you, and I don't have anything new. I think there's enough opinion on either side that people can make their own decisions from here.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Nate79
Posts: 3708
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Help with Tax loss harvesting

Post by Nate79 » Fri Oct 26, 2018 8:59 pm

Earl Lemongrab wrote:
Fri Oct 26, 2018 8:47 pm
Well, I don't hear anything new from you, and I don't have anything new. I think there's enough opinion on either side that people can make their own decisions from here.
Agreed. The same tired argument every time this topic comes up. The IRS is welcome to give very clear guidance. I for one could care less until they do. I do not pay one second of worry to the regular monthly dates for when my 401k or 529 accounts regularly invest money.

rkhusky
Posts: 5874
Joined: Thu Aug 18, 2011 8:09 pm

Re: Help with Tax loss harvesting

Post by rkhusky » Sat Oct 27, 2018 6:56 am

Nate79 wrote:
Fri Oct 26, 2018 8:59 pm
The IRS is welcome to give very clear guidance.
They have.

Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

The Revenue Ruling about IRA's did not and does not negate or modify this clear guidance from the IRS.

"If wishes were horses, beggars would ride"

Jimsad
Posts: 88
Joined: Mon Mar 20, 2017 5:54 pm

Re: Help with Tax loss harvesting

Post by Jimsad » Sat Oct 27, 2018 7:19 am

I originally planned on buying All World ex Us after selling total international fund shares at a loss .
But this is what I ended up doing .
I felt I wanted to reduce my international stock exposure and hence bought total stock Market index after selling the international fund shares .
I also sold some intermediate term tax exempt shares at a loss and bought 500 index and fedral money market .

None of above would entail any wash sale risk .
Does it ?

nolesrule
Posts: 800
Joined: Thu Feb 26, 2015 10:59 am

Re: Help with Tax loss harvesting

Post by nolesrule » Sat Oct 27, 2018 9:19 am

rkhusky wrote:
Sat Oct 27, 2018 6:56 am
Nate79 wrote:
Fri Oct 26, 2018 8:59 pm
The IRS is welcome to give very clear guidance.
They have.

Pub 550:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,

The Revenue Ruling about IRA's did not and does not negate or modify this clear guidance from the IRS.

"If wishes were horses, beggars would ride"
Perhaps one does not Buy securities in a tax-advantaged account?

Line 4 uses the word "Acquire" when referring to IRAs, not "buy". Words have meaning and these verbs are not the same.

Furthermore, one certainly does not "Buy" in a 401k. One gives investment instructions to the plan administrator who may or may not choose to invest according to your instructions. And it is the administrator that has control over the investments which are held in trust for your benefit. You do not actually own them.

And in fact, the wash sale rules do not say anything about applying if you are an account beneficiary. That would open up a whole other can of worms.

Post Reply