Sell Bond Fund in Taxable for Loss?

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wassabi
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Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 7:04 am

For various reasons I own vanguard intermediate term bond fund (VBILX) in my taxable account. Over the past year or two I've been transitioning most of the bonds to my tax advantaged accounts systematically through 401k contributions and other methods. However, due to the drop in the bond market I'm stuck with a small group of VBILX shares in my taxable account that has a -6.5% loss that amounts to ~$3k.

I don't want to be overly obsessive about the tax implications of having bonds in my taxable, but I would like to transition out of tax inefficient bonds in my taxable and instead use this money for some more I-Bonds and to build up a cash savings in my Vanguard money market (per my IPS). However, I'm unsure if it's a bad decision to sell because I'm sitting on a -6.5% loss that amounts to about $3k. I can write it off next year as a capital loss.

If I sit on the small position, I continue to deal with the tax inefficiency, but I don't realize the loss by selling. However, the bond market can continue to stagnate (or go up, who knows?). If I sell, I realize the loss but I can claim the capital loss and get my portfolio to where I think it needs to be per my IPS and make it more tax efficient (but HOW much more tax efficient I don't know).

Any recommendations from the experts?

dcabler
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Re: Sell Bond Fund in Taxable for Loss?

Post by dcabler » Fri Feb 02, 2018 7:17 am

I had been keeping a complete AA in each of my accounts to simplify rebalancing. However is was tax inefficient because of taxable bonds in my taxable accounts. So, in December, I moved everything around such that all of my taxable bonds are now in my rollover IRA's. The net result was that, yes, I was able to do a little tax loss harvesting when I sold the bonds. Be aware, though, if you sell a bond fund in your taxable account and immediately buy the same bond fund in your tax advantaged account, you will be subject to the IRS wash rule. It's easily avoided - you can search within this forum.

Also, an alternative would be to sell your taxable bond bunds and buy muni bond funds instead.

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saltycaper
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Re: Sell Bond Fund in Taxable for Loss?

Post by saltycaper » Fri Feb 02, 2018 7:20 am

wassabi wrote:
Fri Feb 02, 2018 7:04 am

If I sit on the small position, I continue to deal with the tax inefficiency, but I don't realize the loss by selling.
I'm not sure why you think it might be a problem or somehow disadvantageous to realize the loss. It's already a loss, currently, whether you sell or not. That's the first thing to realize. Then you can determine whether or not to "realize" it for tax purposes strictly by the tax consequences.
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wassabi
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Re: Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 8:01 am

dcabler wrote:
Fri Feb 02, 2018 7:17 am
I had been keeping a complete AA in each of my accounts to simplify rebalancing. However is was tax inefficient because of taxable bonds in my taxable accounts. So, in December, I moved everything around such that all of my taxable bonds are now in my rollover IRA's. The net result was that, yes, I was able to do a little tax loss harvesting when I sold the bonds. Be aware, though, if you sell a bond fund in your taxable account and immediately buy the same bond fund in your tax advantaged account, you will be subject to the IRS wash rule. It's easily avoided - you can search within this forum.

Also, an alternative would be to sell your taxable bond bunds and buy muni bond funds instead.
Thanks for the reminder about the wash rule. If I sell, I would use the money to buy some more I-Bonds and increase my money market holdings. If I bought more bond fund, I would buy short-term instead of intermediate term and I believe that should help me to avoid wash sale.

wassabi
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Re: Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 8:02 am

saltycaper wrote:
Fri Feb 02, 2018 7:20 am
wassabi wrote:
Fri Feb 02, 2018 7:04 am

If I sit on the small position, I continue to deal with the tax inefficiency, but I don't realize the loss by selling.
I'm not sure why you think it might be a problem or somehow disadvantageous to realize the loss. It's already a loss, currently, whether you sell or not. That's the first thing to realize. Then you can determine whether or not to "realize" it for tax purposes strictly by the tax consequences.
Good point. I was thinking in terms of "it's not a loss until you actually sell."

Da5id
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Re: Sell Bond Fund in Taxable for Loss?

Post by Da5id » Fri Feb 02, 2018 8:12 am

wassabi wrote:
Fri Feb 02, 2018 7:04 am
If I sell, I realize the loss but I can claim the capital loss and get my portfolio to where I think it needs to be per my IPS and make it more tax efficient (but HOW much more tax efficient I don't know).
I'm a bit baffled. Do you consider realizing losses bad? The loss exists regardless of whether you realize it or not, by realizing it you save some taxes. What's not to love? If you want the "same" investment, either leave the proceeds for 30 days in your money market account to avoid a wash sale (be careful not to reinvest dividends in the VBILX in any account during that period) or swap it to VBTLX, which is very similar but not identical, and swap back if/when you feel like it after 30 days. But you want to get rid of VBILX anyway, so what exactly is the issue?

My personal on TLH issue is deciding when the loss is enough to bother with. Given that I'm investing the way I do regardless, I'll happily harvest losses, just needs to be enough $ to motivate me to deal with it.

livesoft
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Re: Sell Bond Fund in Taxable for Loss?

Post by livesoft » Fri Feb 02, 2018 8:26 am

Sounds like this fund was very tax efficient for you because it has a loss. :twisted: But that is only if you tax-loss harvest it. Sell it. Realize the loss. Buy a bond fund that is not substantially identical in a tax-deferred account such as Total US Bond Market.
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wassabi
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Re: Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 8:32 am

Da5id wrote:
Fri Feb 02, 2018 8:12 am
wassabi wrote:
Fri Feb 02, 2018 7:04 am
If I sell, I realize the loss but I can claim the capital loss and get my portfolio to where I think it needs to be per my IPS and make it more tax efficient (but HOW much more tax efficient I don't know).
I'm a bit baffled. Do you consider realizing losses bad? The loss exists regardless of whether you realize it or not, by realizing it you save some taxes. What's not to love? If you want the "same" investment, either leave the proceeds for 30 days in your money market account to avoid a wash sale (be careful not to reinvest dividends in the VBILX in any account during that period) or swap it to VBTLX, which is very similar but not identical, and swap back if/when you feel like it after 30 days. But you want to get rid of VBILX anyway, so what exactly is the issue?

My personal on TLH issue is deciding when the loss is enough to bother with. Given that I'm investing the way I do regardless, I'll happily harvest losses, just needs to be enough $ to motivate me to deal with it.
Dealing with losses is fairly new territory for me (other than getting wiped out in the late 90s! when I was young and naive) so I'm just looking for different perspectives on whether I should keep or sell the position. Looks to me like selling and harvesting the losses is the best path forward for my situation. Thanks!

wassabi
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Re: Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 8:37 am

I've decided to sell the bond fund that way I can harvest the loss and allocate my positions more efficiently.

Thanks very much for the discussion and help thinking through this topic!

dcabler
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Re: Sell Bond Fund in Taxable for Loss?

Post by dcabler » Fri Feb 02, 2018 2:17 pm

wassabi wrote:
Fri Feb 02, 2018 8:01 am
dcabler wrote:
Fri Feb 02, 2018 7:17 am
I had been keeping a complete AA in each of my accounts to simplify rebalancing. However is was tax inefficient because of taxable bonds in my taxable accounts. So, in December, I moved everything around such that all of my taxable bonds are now in my rollover IRA's. The net result was that, yes, I was able to do a little tax loss harvesting when I sold the bonds. Be aware, though, if you sell a bond fund in your taxable account and immediately buy the same bond fund in your tax advantaged account, you will be subject to the IRS wash rule. It's easily avoided - you can search within this forum.

Also, an alternative would be to sell your taxable bond bunds and buy muni bond funds instead.
Thanks for the reminder about the wash rule. If I sell, I would use the money to buy some more I-Bonds and increase my money market holdings. If I bought more bond fund, I would buy short-term instead of intermediate term and I believe that should help me to avoid wash sale.
Right, as long as it's "different" than what you were already holding. And "different" so far has been interpreted very loosely as I understand it.

Leesbro63
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Re: Sell Bond Fund in Taxable for Loss?

Post by Leesbro63 » Fri Feb 02, 2018 2:33 pm

I'm wresting with the same issue. The problem is I like the fund, esp Admiral shares. But I think it MIGHT be a decent MARKET TIMING (please don't shoot!) bet that interest rates will be the same or higher in 1 month. Meaning you could buy the fund back at the same or lower price, after the wash-sale window closes. But I'm the one who thought putting a camera in cell phones was crazy, so consider the source.

wassabi
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Re: Sell Bond Fund in Taxable for Loss?

Post by wassabi » Fri Feb 02, 2018 2:35 pm

Leesbro63 wrote:
Fri Feb 02, 2018 2:33 pm
I'm wresting with the same issue. The problem is I like the fund, esp Admiral shares. But I think it MIGHT be a decent MARKET TIMING (please don't shoot!) bet that interest rates will be the same or higher in 1 month. Meaning you could buy the fund back at the same or lower price, after the wash-sale window closes. But I'm the one who thought putting a camera in cell phones was crazy, so consider the source.
I sold the fund today and locked in the loss to offset any gains. I think it will work out well.

PS cameras in phones?? are you crazy??

Leesbro63
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Re: Sell Bond Fund in Taxable for Loss?

Post by Leesbro63 » Fri Feb 02, 2018 2:36 pm

wassabi wrote:
Fri Feb 02, 2018 2:35 pm
Leesbro63 wrote:
Fri Feb 02, 2018 2:33 pm
I'm wresting with the same issue. The problem is I like the fund, esp Admiral shares. But I think it MIGHT be a decent MARKET TIMING (please don't shoot!) bet that interest rates will be the same or higher in 1 month. Meaning you could buy the fund back at the same or lower price, after the wash-sale window closes. But I'm the one who thought putting a camera in cell phones was crazy, so consider the source.
I sold the fund today and locked in the loss to offset any gains. I think it will work out well.

PS cameras in phones?? are you crazy??
Yes.

stvyreb
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Re: Sell Bond Fund in Taxable for Loss?

Post by stvyreb » Tue Jun 12, 2018 3:22 pm

Da5id wrote:
Fri Feb 02, 2018 8:12 am
wassabi wrote:
Fri Feb 02, 2018 7:04 am
If I sell, I realize the loss but I can claim the capital loss and get my portfolio to where I think it needs to be per my IPS and make it more tax efficient (but HOW much more tax efficient I don't know).
I'm a bit baffled. Do you consider realizing losses bad? The loss exists regardless of whether you realize it or not, by realizing it you save some taxes. What's not to love? If you want the "same" investment, either leave the proceeds for 30 days in your money market account to avoid a wash sale (be careful not to reinvest dividends in the VBILX in any account during that period) or swap it to VBTLX, which is very similar but not identical, and swap back if/when you feel like it after 30 days. But you want to get rid of VBILX anyway, so what exactly is the issue?

My personal on TLH issue is deciding when the loss is enough to bother with. Given that I'm investing the way I do regardless, I'll happily harvest losses, just needs to be enough $ to motivate me to deal with it.
If one has VBILX on the taxable side, and the tax-deferred(IRA) side & they want to TLH the taxable side, they MUST put their VBILX reinvesting dividends setup on hold for 30 days ? IS that correct?

livesoft
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Re: Sell Bond Fund in Taxable for Loss?

Post by livesoft » Tue Jun 12, 2018 3:27 pm

stvyreb wrote:
Tue Jun 12, 2018 3:22 pm
If one has VBILX on the taxable side, and the tax-deferred(IRA) side & they want to TLH the taxable side, they MUST put their VBILX reinvesting dividends setup on hold for 30 days ? IS that correct?
No, that is absolutely not correct.

What is correct is that the reinvesting dividends in tax-deferred IRA will most likely create non-illegal partial wash sale that will disallow a small portion of any realized loss from selling in a taxable account. This is not a big deal.

But sure, one can stop reinvesting dividends if they want to. That is also not a big deal.
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aristotelian
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Re: Sell Bond Fund in Taxable for Loss?

Post by aristotelian » Tue Jun 12, 2018 4:20 pm

Harvest the loss for sure. They question is do you reinvested in Intermediate Bond or switch to something else. If you want to switch to I Bonds, go for it. Do not use market timing as a reason to stay in Intermediate Bond. It could just as easily go down more as it could recoup losses.

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