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TLH within my Taxable account [Tax Loss Harvesting]

Posted: Tue Dec 25, 2018 10:00 pm
by HGuy
Hi there,

I am a fairly sophisticated investor but I am kind of new at TLH, and thus I have a question I hope someone here can help clarify.

So I have a taxable account with Vanguard in which I invest in a couple of tax efficient funds (namely VTSAX, VDADX, VTMFX) as well as some muni bond funds. I automatically invest once per month. My question is how can I TLH any specific share lots and NOT have a WASH sale when I am always buying more shares on a monthly basis, so every lot I own is flanked by another one a month before and a month after? I am kinda of stumped here....
Any help is appreciated!
Thanks!!

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Tue Dec 25, 2018 10:09 pm
by livesoft
1. Set cost basis method to Specific Identification.
2. If you sell at a loss, be sure to sell any shares purchased within previous 30 days, too.
3. Turn off the NEXT purchase in the same fund which is trivial at Vanguard by unchecking that checkbox as shown elsewhere on the forum.
4. Turn off automatic reinvestment of dividends, too, because you will forget about them and it will mess you up.

That's it.

Added: You can do #1 and #4 tonight; right now. You can even do #3 right now if you want to see or practice how it is done.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Wed Dec 26, 2018 11:37 am
by HGuy
Thanks for the reply livesoft. I had learned #4 below the hard way years ago, and knew #1 and also #3 (although that only works if you are selling the last lot purchased, so stopping or delaying the next investment would work. I didn't quite know #2 and it makes sense. I rarely sell from this account, basically my only motivation is to TLH, but I still feel unsure I wouldn't trigger the WASH rule.

Let's say I want to sell a tax lot I bought on Oct 15, and also sell at a loss another lot I purchased on Sept 15, wouldn't that earlier purchase on Sept 15 trigger a wash sale on my Oct 15 lot? Similarly, wouldn't my regularly scheduled Nov 15 purchase (as I auto invest monthly) also trigger a wash sale on that Oct lot. That's really where I feel like I don't know enough. The way I see it (hopefully wrong) TLH is basically incompatible with an automatic monthly or bi-weekly investment plan, and that's assuming dividends are NOT re-invested. The reason is that any tax lot purchased in the past that you'd potentially want to sell to harvest losses would have been bracketed by purchases on either side. Now if Vanguard had an option to auto invest every 6th week, I'd be golden, but they don't seem to.

Thanks!

Any help from anyone out there would be appreciate it.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Wed Dec 26, 2018 1:56 pm
by PhysicianOnFIRE
HGuy wrote: Wed Dec 26, 2018 11:37 am Thanks for the reply livesoft. I had learned #4 below the hard way years ago, and knew #1 and also #3 (although that only works if you are selling the last lot purchased, so stopping or delaying the next investment would work. I didn't quite know #2 and it makes sense. I rarely sell from this account, basically my only motivation is to TLH, but I still feel unsure I wouldn't trigger the WASH rule.

Let's say I want to sell a tax lot I bought on Oct 15, and also sell at a loss another lot I purchased on Sept 15, wouldn't that earlier purchase on Sept 15 trigger a wash sale on my Oct 15 lot? Similarly, wouldn't my regularly scheduled Nov 15 purchase (as I auto invest monthly) also trigger a wash sale on that Oct lot. That's really where I feel like I don't know enough. The way I see it (hopefully wrong) TLH is basically incompatible with an automatic monthly or bi-weekly investment plan, and that's assuming dividends are NOT re-invested. The reason is that any tax lot purchased in the past that you'd potentially want to sell to harvest losses would have been bracketed by purchases on either side. Now if Vanguard had an option to auto invest every 6th week, I'd be golden, but they don't seem to.

Thanks!

Any help from anyone out there would be appreciate it.
If you had purchased a lot on every single trading day this year, you could sell them all and would not have a wash sale as long as you don't buy back into the fund in the 30 days after the sale.

There's a 61-day window around the tax loss harvesting date in which you can't have any replacement shares purchased (and held). It doesn't matter what you did in the timeframe around when you first purchased the lot.

:beer
-PoF

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Wed Dec 26, 2018 2:02 pm
by livesoft
Selling the 10/15 lot at a loss now will not be affected by any purchases 30 days before now including the 09/15 purchase and the 10/15 purchase itself.

For more fun and deep knowledge, I did an entire multi-month thread on tax-loss harvesting and wash sales where I had automated investments every 2 weeks:
viewtopic.php?t=179414

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Wed Dec 26, 2018 2:33 pm
by Earl Lemongrab
Just to clarify, you don't own this in any IRAs, correct? If so, then you have look at any reinvestment or other purchases there as well.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Thu Jan 03, 2019 3:28 pm
by HGuy
[/quote]

If you had purchased a lot on every single trading day this year, you could sell them all and would not have a wash sale as long as you don't buy back into the fund in the 30 days after the sale.

There's a 61-day window around the tax loss harvesting date in which you can't have any replacement shares purchased (and held). It doesn't matter what you did in the timeframe around when you first purchased the lot.

:beer
-PoF
[/quote]

POF, livesoft, and Earl

Thanks for taking the time for your reply. POF, I am actually an admirer and subscriber of yours, AND we also share exactly the same profession, so double thanks to you specifically.

Anyhow, I see what you guys are saying and understand that specific scenario (by POF), but your scenario and mine are slightly different and I am still a bit worried. In yours, I buy shares every day of the year, would sell now to TLH, and would simply refrain from buying again for 31 days to avoid the wash sale. The problem is that in my case, I was considering to sell NOW 1-2 lots I had bought in the past (say Oct and Sept) but I have indeed bought the fund 30 days before and after, because I buy shares monthly automatically on the same day, ie I bought shares on Sept and also Nov, and that's where I think I could trigger a wash sale. Wouldn't my Sept purchase trigger a wash sale for my Oct lot? And wouldn't my Nov purchase do the same for my Oct lot? The are all 30 days apart, sometimes 29, depending on trading days. Maybe I am just confused about the rule--like I mentioned, I have never done a TLH before, but want/need to start incorporating it, given where I am financially. My concern is whether TLH is compatible with an account in which one also automatically invests every 30 days. To me, it seems NOT to be.

Thanks again for considering my question.
HGuy

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Thu Jan 03, 2019 4:21 pm
by livesoft
HGuy wrote: Thu Jan 03, 2019 3:28 pmWouldn't my Sept purchase trigger a wash sale for my Oct lot? And wouldn't my Nov purchase do the same for my Oct lot?
No. The important date is WHEN you sell something for a loss and the window beginning 30 days before and ending 30 days after.

Please read something by the IRS on the wash sale rule and not just go by internet forums.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Thu Jan 03, 2019 5:01 pm
by HGuy
Livesfot,

Thank you so much. Now that you capitalized "WHEN", I think I finally understand. I was thinking the 61 days window was around the purchase date of the tax lot in question being sold for a loss, when I now see it's set at the sale date instead. That helps a lot! I did read some of your post on TLH experiment to generate a wash sale and it also helped. I just misinterpreted for some reason, but I usually don't read too many forums: mostly read here, investopedia and a few blogs/podcasts on personal finance. Again, thanks for the time - I hear you are the guru when it comes to TLH.

Then the only concern in the setting of an automated monthly investment plan will be to wait 30 days since the last purchase AND delay or re-program the next automatic investment to fully avoid it.

Thanks again.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Thu Jan 03, 2019 5:10 pm
by livesoft
HGuy wrote: Thu Jan 03, 2019 5:01 pm Then the only concern in the setting of an automated monthly investment plan will be to wait 30 days since the last purchase ....
That one is of no concern, so more reading is needed to see why.

Re: TLH within my Taxable account [Tax Loss Harvesting]

Posted: Thu Jan 03, 2019 5:11 pm
by Earl Lemongrab
It helps to understand the purpose of wash sales. They don't want you taking a loss and buying the same thing immediately before or after.