Tax Loss Harvesting Worth it?

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rkhusky
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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Wed Aug 07, 2019 3:59 pm

placeholder wrote:
Wed Aug 07, 2019 3:38 pm
rkhusky wrote:
Wed Aug 07, 2019 3:28 pm
Since the IRS does not make or change the law, if IRA’s are now subject to the wash sale statute, they always have been.
That's like saying that it was always the case that you could only do just one 60 day rollover per 12 month period yet that did represent a very real change in regulations which is also the case for IRAs (and not for 401ks).
If you are going to bring something in from left field, be so kind to also supply the statute(s) upon which the regulations are based.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Wed Aug 07, 2019 4:03 pm

rkhusky wrote:
Wed Aug 07, 2019 3:59 pm
If you are going to bring something in from left field, be so kind to also supply the statute(s) upon which the regulations are based.
No one least of all me has said anything about the law which did not change but the regulations based on the law did and that change did NOT include 401ks so it is just your unfounded opinion that those are included.

Lee_WSP
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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Wed Aug 07, 2019 5:38 pm

What happens if you sell at a loss, but do not TLH? Is the old basis transferred to the replacement asset?

Trader Joe
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Re: Tax Loss Harvesting Worth it?

Post by Trader Joe » Wed Aug 07, 2019 5:46 pm

understandingJH wrote:
Sat Jul 20, 2019 5:17 pm
I have five accounts:

Employer:
HSA: 4%
401k: 15%

Vanguard:
IRA: 30%
Roth: 20%
Taxable: 31%

Since my employer accounts will reinvest dividends and keep buying funds, Tax Loss Harvesting (TLH) seems to only work if it's for funds that are not in these accounts. For example, I can keep Total International (TI) only at Vanguard and set it up to not reinvest dividends. I would be overweight in US stocks if I kept TI only in taxable (without selling some of my US stocks there). To avoid capital gains taxes of selling US stocks to make room for the entire TI amount in taxable, I'd also need to keep some TI in my IRA or Roth.

This would expose 14% (about half of TI stocks) of my portfolio to TLH opportunities. Does this strategy make sense? I'm targeting TI because it's 30% of my portfolio and I also would get the foreign tax credit on good years by keeping as much as I can in taxable.

Lastly, is TLH worth it? I'm in the 15% capital gains bracket. It's my understanding that TLH defers taxes to the future due to a lower cost basis on the shares sold and then bought. Does this mean that each year I take the full TLH benefit it's like contributing $3000 to a tax-deferred account?
No, it is not worth it to me.

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Wed Aug 07, 2019 5:51 pm

Lee_WSP wrote:
Wed Aug 07, 2019 5:38 pm
What happens if you sell at a loss, but do not TLH? Is the old basis transferred to the replacement asset?
Your question is unclear. If you sell at a loss, you've accomplished a TLH, whether that was the intent or not. When you report the sale on your tax return, the loss will be reported and it will be applied first to offset capital gains and then, up to $3k, to offset earned income.

There is no requirement to purchase a replacement investment. If you choose to do so, there are a few rules to follow within the 61 day wash sale period to prevent a wash sale.

If you successfully avoid a wash sale with a replacement investment that is not substantially identical, then no, there is no cost basis adjustment of the replacement asset.

If you fail to avoid a wash sale, and have purchased a replacement investment within the 61 day wash sale period that is substantially identical, then you have a wash sale, and at least a portion of the loss you incurred will be disallowed. The value of the loss that is disallowed gets added to the cost basis of the replacement investment that caused the wash sale. The holding period of the replacement investment is also adjusted to match the holding period of the investment sold at a loss.
"Discipline matters more than allocation.” ─William Bernstein

rkhusky
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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Wed Aug 07, 2019 6:10 pm

placeholder wrote:
Wed Aug 07, 2019 4:03 pm
rkhusky wrote:
Wed Aug 07, 2019 3:59 pm
If you are going to bring something in from left field, be so kind to also supply the statute(s) upon which the regulations are based.
No one least of all me has said anything about the law which did not change but the regulations based on the law did and that change did NOT include 401ks so it is just your unfounded opinion that those are included.
The IRS can only enact regulations that are permitted within the associated statute. There is nothing in the wash sale statute that would permit the IRS to unilaterally decide that trusts and IRA’s are subject to the wash sale rule, when they weren’t subject to the rule prior to that.

Perhaps your confusion arises due to a misunderstanding on the difference between the actual law and the aggressiveness of the authorities in bringing charges under that law.

Lee_WSP
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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Wed Aug 07, 2019 6:24 pm

iceport wrote:
Wed Aug 07, 2019 5:51 pm
Lee_WSP wrote:
Wed Aug 07, 2019 5:38 pm
What happens if you sell at a loss, but do not TLH? Is the old basis transferred to the replacement asset?
If you fail to avoid a wash sale, and have purchased a replacement investment within the 61 day wash sale period that is substantially identical, then you have a wash sale, and at least a portion of the loss you incurred will be disallowed. The value of the loss that is disallowed gets added to the cost basis of the replacement investment that caused the wash sale. The holding period of the replacement investment is also adjusted to match the holding period of the investment sold at a loss.
Okay that makes sense. No point in not taking the deduction.

On to the heart of my question. The wash sale. So, you report to the IRS that you sold the asset at a loss, but that you replaced the asset and they should credit you with a higher cost basis for the replacement asset?

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Wed Aug 07, 2019 6:38 pm

Lee_WSP wrote:
Wed Aug 07, 2019 6:24 pm
iceport wrote:
Wed Aug 07, 2019 5:51 pm
Lee_WSP wrote:
Wed Aug 07, 2019 5:38 pm
What happens if you sell at a loss, but do not TLH? Is the old basis transferred to the replacement asset?
If you fail to avoid a wash sale, and have purchased a replacement investment within the 61 day wash sale period that is substantially identical, then you have a wash sale, and at least a portion of the loss you incurred will be disallowed. The value of the loss that is disallowed gets added to the cost basis of the replacement investment that caused the wash sale. The holding period of the replacement investment is also adjusted to match the holding period of the investment sold at a loss.
Okay that makes sense. No point in not taking the deduction.

On to the heart of my question. The wash sale. So, you report to the IRS that you sold the asset at a loss, but that you replaced the asset and they should credit you with a higher cost basis for the replacement asset?
It's not that there's no point in not taking the deduction, it's that you don't have a choice. You report the transaction as it occurred, accurately. If there's a loss, there's a loss.

As far as the wash sale, when you report it, the loss on the sale of the affected shares will be disallowed. At this point, it becomes your responsibility to document the wash sale and adjust the cost basis of the replacement investment for future use when you eventually sell the replacement investment. The IRS does not do this for you. Your brokerage will assist with that effort if all transactions occurred in the same account. But if the transactions occurred in more than one account, even your brokerage will not document the cost basis adjustment for you. It's in your interest to keep track of it all yourself, anyway, to make sure the numbers are all correct. If your numbers are all correct, the IRS will allow the appropriate cost basis adjustment of the replacement shares when you sell them and report that sale.
"Discipline matters more than allocation.” ─William Bernstein

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grabiner
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Re: Tax Loss Harvesting Worth it?

Post by grabiner » Wed Aug 07, 2019 7:48 pm

Lee_WSP wrote:
Wed Aug 07, 2019 5:38 pm
What happens if you sell at a loss, but do not TLH? Is the old basis transferred to the replacement asset?
TLH is not a tax concept; it is an investment strategy, in which you sell stock for a capital loss and stay invested by buying other stock. Therefore, the capital loss from TLH is taxed the same as any other capital loss. If you have a wash sale, the loss is added to the basis of the replacement shares, and otherwise it is reported on your tax form where it offsets capital gains, or $3000 of ordinary income, or is carried over to the next year.
Wiki David Grabiner

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Wed Aug 07, 2019 10:40 pm

rkhusky wrote:
Wed Aug 07, 2019 6:10 pm
The IRS can only enact regulations that are permitted within the associated statute. There is nothing in the wash sale statute that would permit the IRS to unilaterally decide that trusts and IRA’s are subject to the wash sale rule, when they weren’t subject to the rule prior to that.

Perhaps your confusion arises due to a misunderstanding on the difference between the actual law and the aggressiveness of the authorities in bringing charges under that law.
I am not the least confused and I know the difference between law and regulation but you have provided no evidence that the either regulations or the law apply to 401ks in this situation you just keep stating it as if it were codified somewhere.

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kramer
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Re: Tax Loss Harvesting Worth it?

Post by kramer » Thu Aug 08, 2019 5:17 am

I was able to TLH during my working years and deduct $3000 from my *ordinary* income each year (was paying average tax of about 35% fed + state). Those gains have been (or will be) realized in my current retirement at 0% cap gains rate. So it was literally a $1,000 per year net win for me over a period of maybe 7 years (basically equivalent to getting an annual pre-tax $1500 bonus for each of those years)

Now, since I retired, I have been focusing on tax gain harvesting combined with Roth conversions.

Greenman72
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Re: Tax Loss Harvesting Worth it?

Post by Greenman72 » Thu Aug 08, 2019 8:20 am

With regard to IRA's and 401k's - the law is clear. Per Pub 550 - "You cannot deduct losses from sales or trades of stock or securities in a wash sale...." In a tax-protected account, there is no loss to deduct, so there is no wash sale.

You can be subject to the wash sale if you sell a stock in a taxable account (at a loss), then purchase it in an IRA. In practice, I seriously doubt anybody would ever notice that, though. Neither the brokerage company, nor the tax preparer, nor the IRS. (Not a recommendation. Just an observation.)

dcabler
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Re: Tax Loss Harvesting Worth it?

Post by dcabler » Thu Aug 08, 2019 8:39 am

AlohaJoe wrote:
Sun Jul 21, 2019 9:18 pm
understandingJH wrote:
Sat Jul 20, 2019 5:17 pm
Lastly, is TLH worth it?
Worth what? Worth the 5 minutes a year it takes to log into my account and enter an order? It isn't like TLH takes any time or effort.

I know people that will drive 5 minutes to a different gas station that is 3 cents a gallon cheaper.
Or drive endlessly around a parking lot until the perfect spot opens up close to the store.. :D

dcabler
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Re: Tax Loss Harvesting Worth it?

Post by dcabler » Thu Aug 08, 2019 8:50 am

Like many, I TLH'd in 2008 and happily enjoyed the benefits of that on my tax returns for the next several years.

Since then, it's been opportunistic, mainly with two views
1) I have a couple funds that I no longer want, but with so much capital gains in them that I don't want a tax hit to sell them. Neither fund is so horrible or so far away from my goals that I think I should take the tax hit today and move on. So any dividends/cap gains they produce now are redirected elsewhere. It's a lot like slowly turning around an oil tanker. But some day, there will be enough of a downturn that I'll be able to sell at least some of the lots, or I'll be retired with a different tax profile.
2) For other stock funds I hold, I have some near-but-not-exactly-equivalents that I can slosh back and forth between, when needed.

Yes, both of these things result in owning more funds that I'd really like, but because of all of the different accounts we hold (401K, IRAs, HSA, deferred compensation), each with their own almost unique set of fund choices, that's already a reality.

Cheers!

dcabler
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Re: Tax Loss Harvesting Worth it?

Post by dcabler » Thu Aug 08, 2019 8:54 am

Greenman72 wrote:
Thu Aug 08, 2019 8:20 am
With regard to IRA's and 401k's - the law is clear. Per Pub 550 - "You cannot deduct losses from sales or trades of stock or securities in a wash sale...." In a tax-protected account, there is no loss to deduct, so there is no wash sale.
Yup, but you may still get the nasty-gram from your investment house if you violate their frequent-trading policy, if holding mutual funds. Happened to me in 2009 and they called me every day for about 2 weeks to lecture me after they already sent the letter. I didn't pick up the phone. :D
I also never violated it again after reading the policy in depth.

rkhusky
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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Thu Aug 08, 2019 10:17 am

placeholder wrote:
Wed Aug 07, 2019 10:40 pm
rkhusky wrote:
Wed Aug 07, 2019 6:10 pm
The IRS can only enact regulations that are permitted within the associated statute. There is nothing in the wash sale statute that would permit the IRS to unilaterally decide that trusts and IRA’s are subject to the wash sale rule, when they weren’t subject to the rule prior to that.

Perhaps your confusion arises due to a misunderstanding on the difference between the actual law and the aggressiveness of the authorities in bringing charges under that law.
I am not the least confused and I know the difference between law and regulation but you have provided no evidence that the either regulations or the law apply to 401ks in this situation you just keep stating it as if it were codified somewhere.
Below is the relevant part of the wash sale statute. Please show me where it differentiates between IRA accounts and 401k accounts, for both of which the investment selections are controlled by the taxpayer.
26 U.S. Code § 1091 wrote: (a) DISALLOWANCE OF LOSS DEDUCTION
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term “stock or securities” shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities.
Note also the holding below from Revenue Ruling 2008-005, meaning that the wash sale statute applies to IRA's and always has. The IRS did not just decide in 2008 that IRA's would be subject to wash sales.
HOLDING
The loss on the Sale of stock is disallowed under § 1091.

placeholder
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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 11:58 am

rkhusky wrote:
Thu Aug 08, 2019 10:17 am
Note also the holding below from Revenue Ruling 2008-005, meaning that the wash sale statute applies to IRA's and always has. The IRS did not just decide in 2008 that IRA's would be subject to wash sales.
HOLDING
The loss on the Sale of stock is disallowed under § 1091.
Seems like you're confused between law and regulation so just like with the one-rollover rule the law didn't change but the interpretation did however that is irrelevant because the ruling does not apply to 401ks and never did and nothing from that ruling should be read into anything else so why would 401ks participate in wash sales?

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 12:17 pm

placeholder wrote:
Thu Aug 08, 2019 11:58 am
...so why would 401ks participate in wash sales?
Because they are part of one's financial position, perhaps?

Essentially, you are asking why shouldn't it be legal to claim a loss without changing your financial position. The answer is that there is a law against doing so within a 61 day period around the date the loss was incurred. Why should part of your holdings be excluded?
"Discipline matters more than allocation.” ─William Bernstein

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 1:01 pm

iceport wrote:
Thu Aug 08, 2019 12:17 pm
placeholder wrote:
Thu Aug 08, 2019 11:58 am
...so why would 401ks participate in wash sales?
Because they are part of one's financial position, perhaps?
Where does the law or IRS regulations discuss "financial position"?
Essentially, you are asking why shouldn't it be legal to claim a loss without changing your financial position. The answer is that there is a law against doing so within a 61 day period around the date the loss was incurred. Why should part of your holdings be excluded?
Because they are not actually your holdings they are part of an employer plan for benefit of you so your control of the money is limited to a greater or lesser extent.

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Re: Tax Loss Harvesting Worth it?

Post by H-Town » Thu Aug 08, 2019 1:05 pm

placeholder wrote:
Thu Aug 08, 2019 1:01 pm
iceport wrote:
Thu Aug 08, 2019 12:17 pm
placeholder wrote:
Thu Aug 08, 2019 11:58 am
...so why would 401ks participate in wash sales?
Because they are part of one's financial position, perhaps?
Where does the law or IRS regulations discuss "financial position"?
Essentially, you are asking why shouldn't it be legal to claim a loss without changing your financial position. The answer is that there is a law against doing so within a 61 day period around the date the loss was incurred. Why should part of your holdings be excluded?
Because they are not actually your holdings they are part of an employer plan for benefit of you so your control of the money is limited to a greater or lesser extent.
wait what? my 401ks isn't mine? it's a big chunk of money :oops: :mrgreen:

you lost me...

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 1:13 pm

placeholder wrote:
Thu Aug 08, 2019 1:01 pm
iceport wrote:
Thu Aug 08, 2019 12:17 pm
placeholder wrote:
Thu Aug 08, 2019 11:58 am
...so why would 401ks participate in wash sales?
Because they are part of one's financial position, perhaps?
Where does the law or IRS regulations discuss "financial position"?
Apparently, the relevance of one's "financial position" was clarified back in 1939 in the United States Court of Appeals for the Third Circuit in Hanlin v. Commissioner.
Hanlin, 108 F.2d at 430. The Third Circuit further explains that [w]hen the taxpayer‘s ability to pay is diminished by the realization of losses, these losses should and do operate to reduce his tax. The wash sales provision is designed to eliminate fictitious losses. As losses are a matter of economics, so the fiction lies in the lack of any change in the economic position on the part of the taxpayer.
viewtopic.php?p=3857349#p3857349
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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 1:22 pm

H-Town wrote:
Thu Aug 08, 2019 1:05 pm
wait what? my 401ks isn't mine? it's a big chunk of money :oops: :mrgreen:

you lost me...
Try to move it somewhere else or change the fund options.

H-Town
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Re: Tax Loss Harvesting Worth it?

Post by H-Town » Thu Aug 08, 2019 2:04 pm

placeholder wrote:
Thu Aug 08, 2019 1:22 pm
H-Town wrote:
Thu Aug 08, 2019 1:05 pm
wait what? my 401ks isn't mine? it's a big chunk of money :oops: :mrgreen:

you lost me...
Try to move it somewhere else or change the fund options.
Sure, just change job and move your 401k to your IRA. And while doing so, try to change the fund options in whatever brokerage house you have business with. :D

Good luck with your TLH...

rkhusky
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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Thu Aug 08, 2019 3:04 pm

placeholder wrote:
Thu Aug 08, 2019 11:58 am
rkhusky wrote:
Thu Aug 08, 2019 10:17 am
Note also the holding below from Revenue Ruling 2008-005, meaning that the wash sale statute applies to IRA's and always has. The IRS did not just decide in 2008 that IRA's would be subject to wash sales.
HOLDING
The loss on the Sale of stock is disallowed under § 1091.
Seems like you're confused between law and regulation so just like with the one-rollover rule the law didn't change but the interpretation did however that is irrelevant because the ruling does not apply to 401ks and never did and nothing from that ruling should be read into anything else so why would 401ks participate in wash sales?
Can you provide an IRS ruling that says that IRA's were not subject to the wash sale rule at some point prior to 2008? That would be evidence that the IRS changed their interpretation of the wash sale rule.

The Revenue Ruling does not having anything to do with 401k's, but the wash sale statute §1091 does.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 3:13 pm

rkhusky wrote:
Thu Aug 08, 2019 3:04 pm
Can you provide an IRS ruling that says that IRA's were not subject to the wash sale rule at some point prior to 2008? That would be evidence that the IRS changed their interpretation of the wash sale rule.
No but this gets back to the situation that the IRAs are not accounts owned by the taxpayer but are like 401ks trusts so the function of the ruling was to say that indeed these particular trusts are included in wash sales but it says nothing about any other trusts.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 3:14 pm

H-Town wrote:
Thu Aug 08, 2019 2:04 pm
Sure, just change job and move your 401k to your IRA. And while doing so, try to change the fund options in whatever brokerage house you have business with. :D
Then you no longer have a 401k with the associated benefits/deficits so it's irrelevant to the question.

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 3:23 pm

^^ All of this Herculean effort, these mental gymnastics and tortured logic, just to avoid the simple solution of finding a different index to track that performs practically the same? Wow. :?
"Discipline matters more than allocation.” ─William Bernstein

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Re: Tax Loss Harvesting Worth it?

Post by H-Town » Thu Aug 08, 2019 3:26 pm

placeholder wrote:
Thu Aug 08, 2019 3:14 pm
H-Town wrote:
Thu Aug 08, 2019 2:04 pm
Sure, just change job and move your 401k to your IRA. And while doing so, try to change the fund options in whatever brokerage house you have business with. :D
Then you no longer have a 401k with the associated benefits/deficits so it's irrelevant to the question.
You seem to refuse to understand and/or to follow Code Section 1091(a). Good luck to you.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 3:28 pm

H-Town wrote:
Thu Aug 08, 2019 3:26 pm
Then you no longer have a 401k with the associated benefits/deficits so it's irrelevant to the question.
You seem to refuse to understand and/or to follow Code Section 1091(a). Good luck to you.
I don't see how that follows from my comment.

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 5:26 pm

placeholder wrote:
Thu Aug 08, 2019 3:13 pm
rkhusky wrote:
Thu Aug 08, 2019 3:04 pm
Can you provide an IRS ruling that says that IRA's were not subject to the wash sale rule at some point prior to 2008? That would be evidence that the IRS changed their interpretation of the wash sale rule.
No but this gets back to the situation that the IRAs are not accounts owned by the taxpayer but are like 401ks trusts so the function of the ruling was to say that indeed these particular trusts are included in wash sales but it says nothing about any other trusts.
It says nothing about any other trusts because no other trust was involved in the case! There's no mystery there. Are you really construing that omission to be an intentional statement that other trusts should somehow be viewed differently? Sorry, that just seems crazy.

Here's the pertinent part of IRS Revenue Ruling 2008-5:
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 4§ 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).
So why is it — exactly — that an individual with command over the purchase and sale of assets in a 401k that are substantially identical to those the individual sold at a loss elsewhere should be magically exempt from the wash sale rule? Isn't exactly the same line of reasoning used in rr 2008-5 directly applicable to 401ks?

Though I don't have his credentials, knowledge or experience, I completely agree with Mike Piper on this.
To the best of my knowledge, there is no official IRS ruling that speaks specifically to wash sales being created by a transaction in a 401(k). In other words, I’m not aware of any source of legal authority that clearly says that a purchase in a 401(k) would trigger a wash sale.

However, in my opinion, it seems pretty clear that the line of reasoning in the above-linked revenue ruling would apply to employer-sponsored retirement plans as well as IRAs.
Seems pretty clear to me as well...
...a trust like this one could be used deliberately to accomplish the very thing which Congress intended to frustrate...
Indeed, it seems as though that is exactly what you are advocating.
Last edited by iceport on Thu Aug 08, 2019 5:49 pm, edited 1 time in total.
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Yellowhouse
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Re: Tax Loss Harvesting Worth it?

Post by Yellowhouse » Thu Aug 08, 2019 5:47 pm

Personally, I probably will never attempt to TLH. Anything that is that confusing that involves so many perceived moving parts, no frigging thank you!!

I'll happily pay my small tax bill! I'm in a very low tax bracket anyway.

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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Thu Aug 08, 2019 5:49 pm

iceport wrote:
Thu Aug 08, 2019 3:23 pm
^^ All of this Herculean effort, these mental gymnastics and tortured logic, just to avoid the simple solution of finding a different index to track that performs practically the same? Wow. :?
Unless you thought you were in the clear, but then realized your IRA had VTSAX on auto invest and you didn't turn it off 30 days prior to selling VTSAX in your taxable account. :beer :sharebeer

But yeah, if you know the rules before selling an asset, you should be able to easily buy the "similar, but not exactly the same" replacement asset and avoid the 60 day window.

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Re: Tax Loss Harvesting Worth it?

Post by fortyofforty » Thu Aug 08, 2019 5:58 pm

iceport wrote:
Thu Aug 08, 2019 3:23 pm
^^ All of this Herculean effort, these mental gymnastics and tortured logic, just to avoid the simple solution of finding a different index to track that performs practically the same? Wow. :?
Amazing, isn't it? For more mental gymnastics, how about investments owned by a husband and investments owned by a wife, in their names only, in separate accounts. Then, husband sells at a loss and wife buys same exact investment in her individual account. Wash sale? Allowed by IRS? :confused
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 6:03 pm

The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 6:23 pm

placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
Wait, what???

The fund choices are irrelevant. If the plan does not include a substantially identical asset to what the individual holds elsewhere, then there's no problem. If the plan does, then the individual had direct control over the timing of the buying and selling of that substantially identical asset using the available balance in the plan, no? Nobody's forcing the investor to buy replacement shares for an asset sold at a loss elsewhere. If they do that by accident, then so be it. There's no "ooops" clause exempting wash sales in taxable accounts or IRAs, either.

If it's not the case that 401k plan participants can by and sell at will, it's news to me. Though, truth be told, I never participated in a 401k plan. I participate in a 457b plan, and I can assure you, I have every bit as much control over the buying and selling of the assets in that plan as I do in my Vanguard accounts. Place an order and the transaction is completed at the next market session close.
"Discipline matters more than allocation.” ─William Bernstein

Lee_WSP
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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Thu Aug 08, 2019 6:42 pm

iceport wrote:
Thu Aug 08, 2019 6:23 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
Wait, what???

The fund choices are irrelevant. If the plan does not include a substantially identical asset to what the individual holds elsewhere, then there's no problem. If the plan does, then the individual had direct control over the timing of the buying and selling of that substantially identical asset using the available balance in the plan, no? Nobody's forcing the investor to buy replacement shares for an asset sold at a loss elsewhere. If they do that by accident, then so be it. There's no "ooops" clause exempting wash sales in taxable accounts or IRAs, either.

If it's not the case that 401k plan participants can by and sell at will, it's news to me. Though, truth be told, I never participated in a 401k plan. I participate in a 457b plan, and I can assure you, I have every bit as much control over the buying and selling of the assets in that plan as I do in my Vanguard accounts. Place an order and the transaction is completed at the next market session close.
That actually makes a lot of sense. The taxpayer does not have any ability to choose the basket of funds in the 401k. A brokerage inside a 401k....

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 6:45 pm

Lee_WSP wrote:
Thu Aug 08, 2019 6:42 pm
That actually makes a lot of sense. The taxpayer does not have any ability to choose the basket of funds in the 401k. A brokerage inside a 401k....
True. But if a substantially identical asset is offered, doesn't the taxpayer have direct control over the buying and selling of that asset?

Nobody's saying they can't use the substantially identical asset, just that they can't replace shares sold at a loss elsewhere within the wash sale period — just like in other accounts.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Thu Aug 08, 2019 6:49 pm

placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's. While there may be some differences in relation to IRA's, there is no indication that the IRS considers those differences to be of sufficient importance to exempt 401k's from the wash sale rule. That argument is just concocted out of thin air by those who want to use their 401k's to circumvent the wash sale rule.

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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Thu Aug 08, 2019 6:51 pm

rkhusky wrote:
Thu Aug 08, 2019 6:49 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's. While there may be some differences in relation to IRA's, there is no indication that the IRS considers those differences to be of sufficient importance to exempt 401k's from the wash sale rule. That argument is just concocted out of thin air by those who want to use their 401k's to circumvent the wash sale rule.
Not true. The taxpayer must choose at the beginning of the year how much the employer will withdraw from her paycheck. The employer decides whether employee gets to change this choice more than once per year.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 7:23 pm

rkhusky wrote:
Thu Aug 08, 2019 6:49 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's.
False as contributions must be made from salary so the timing is driven by that and the plan provides the fund lineup so for many there is no opportunity to choose alternates that would not cause the wash.
Last edited by placeholder on Thu Aug 08, 2019 7:27 pm, edited 1 time in total.

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 7:25 pm

iceport wrote:
Thu Aug 08, 2019 6:23 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
Wait, what???

The fund choices are irrelevant. If the plan does not include a substantially identical asset to what the individual holds elsewhere, then there's no problem. If the plan does, then the individual had direct control over the timing of the buying and selling of that substantially identical asset using the available balance in the plan, no? Nobody's forcing the investor to buy replacement shares for an asset sold at a loss elsewhere. If they do that by accident, then so be it. There's no "ooops" clause exempting wash sales in taxable accounts or IRAs, either.

If it's not the case that 401k plan participants can by and sell at will, it's news to me. Though, truth be told, I never participated in a 401k plan. I participate in a 457b plan, and I can assure you, I have every bit as much control over the buying and selling of the assets in that plan as I do in my Vanguard accounts. Place an order and the transaction is completed at the next market session close.
You have to have consistent rules for all.

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iceport
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Re: Tax Loss Harvesting Worth it?

Post by iceport » Thu Aug 08, 2019 7:50 pm

...used deliberately to accomplish the very thing which Congress intended to frustrate...
The funny thing is, I feel guilty tax-loss harvesting according to the letter of the law using a replacement asset. It just seems too easy to claim a loss while staying invested. Others seem to feel no guilt at all in flouting the rules outright.

To each their own.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 8:15 pm

iceport wrote:
Thu Aug 08, 2019 7:50 pm
...used deliberately to accomplish the very thing which Congress intended to frustrate...
The funny thing is, I feel guilty tax-loss harvesting according to the letter of the law using a replacement asset. It just seems too easy to claim a loss while staying invested. Others seem to feel no guilt at all in flouting the rules outright.
Why do you think that using a close replacement meets the letter of the law?

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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Thu Aug 08, 2019 9:20 pm

placeholder wrote:
Thu Aug 08, 2019 7:23 pm
rkhusky wrote:
Thu Aug 08, 2019 6:49 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's.
False as contributions must be made from salary so the timing is driven by that and the plan provides the fund lineup so for many there is no opportunity to choose alternates that would not cause the wash.
Doesn’t matter because the IRS has not indicated that that is of any importance. And the taxpayer can just choose a different fund in their 401k compared to their taxable. That’s where their control lies.

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Re: Tax Loss Harvesting Worth it?

Post by rkhusky » Thu Aug 08, 2019 9:23 pm

Lee_WSP wrote:
Thu Aug 08, 2019 6:51 pm
rkhusky wrote:
Thu Aug 08, 2019 6:49 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's. While there may be some differences in relation to IRA's, there is no indication that the IRS considers those differences to be of sufficient importance to exempt 401k's from the wash sale rule. That argument is just concocted out of thin air by those who want to use their 401k's to circumvent the wash sale rule.
Not true. The taxpayer must choose at the beginning of the year how much the employer will withdraw from her paycheck. The employer decides whether employee gets to change this choice more than once per year.
Then the taxpayer should choose a different fund in their 401k compared to their taxable account. Then all that is irrelevant.

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Re: Tax Loss Harvesting Worth it?

Post by Lee_WSP » Thu Aug 08, 2019 9:34 pm

rkhusky wrote:
Thu Aug 08, 2019 9:23 pm
Lee_WSP wrote:
Thu Aug 08, 2019 6:51 pm
rkhusky wrote:
Thu Aug 08, 2019 6:49 pm
placeholder wrote:
Thu Aug 08, 2019 6:03 pm
The choices and timing of purchases in 401ks are largely not under the control of the taxpayer and that is the difference from other trusts like the one described in the court case and IRAs.
The opposite is actually true - the taxpayer largely has control over the choices and timing of purchases in their 401k's. While there may be some differences in relation to IRA's, there is no indication that the IRS considers those differences to be of sufficient importance to exempt 401k's from the wash sale rule. That argument is just concocted out of thin air by those who want to use their 401k's to circumvent the wash sale rule.
Not true. The taxpayer must choose at the beginning of the year how much the employer will withdraw from her paycheck. The employer decides whether employee gets to change this choice more than once per year.
Then the taxpayer should choose a different fund in their 401k compared to their taxable account. Then all that is irrelevant.
Are we arguing why something should be or the rationale behind a possible IRS guidance?

I'm not sure what the original person's quote is, but if it is an IRS letter, then that is the rationale behind why a 401k is treated differently. If we're arguing hypotheticals, I don't have a dog in this fight.

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Re: Tax Loss Harvesting Worth it?

Post by MathIsMyWayr » Thu Aug 08, 2019 9:56 pm

dcabler wrote:
Thu Aug 08, 2019 8:50 am
Since then, it's been opportunistic, mainly with two views
1) I have a couple funds that I no longer want, but with so much capital gains in them that I don't want a tax hit to sell them. Neither fund is so horrible or so far away from my goals that I think I should take the tax hit today and move on. So any dividends/cap gains they produce now are redirected elsewhere. It's a lot like slowly turning around an oil tanker. But some day, there will be enough of a downturn that I'll be able to sell at least some of the lots, or I'll be retired with a different tax profile.
Are you holding on to the funds with so much capital gains with the hope of TLH in a big downturn? Isn't it better to sell at gain and pay tax rather than to lose money and TLH?

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Re: Tax Loss Harvesting Worth it?

Post by placeholder » Thu Aug 08, 2019 10:00 pm

rkhusky wrote:
Thu Aug 08, 2019 9:20 pm
Doesn’t matter because the IRS has not indicated that that is of any importance. And the taxpayer can just choose a different fund in their 401k compared to their taxable. That’s where their control lies.
You have no way of knowing that for instance my company 401k originally had 4 funds SP 500 bond fund money market and company stock but the important thing is that these limits and the other features of it being a trust make it not one of your accounts and so does not participate in wash sales and while being a trust alone is not enough as per the court decision it's a step that way and the lack of control completes it.

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Re: Tax Loss Harvesting Worth it?

Post by fortyofforty » Fri Aug 09, 2019 6:00 am

placeholder wrote:
Thu Aug 08, 2019 10:00 pm
rkhusky wrote:
Thu Aug 08, 2019 9:20 pm
Doesn’t matter because the IRS has not indicated that that is of any importance. And the taxpayer can just choose a different fund in their 401k compared to their taxable. That’s where their control lies.
You have no way of knowing that for instance my company 401k originally had 4 funds SP 500 bond fund money market and company stock but the important thing is that these limits and the other features of it being a trust make it not one of your accounts and so does not participate in wash sales and while being a trust alone is not enough as per the court decision it's a step that way and the lack of control completes it.
If I can tell my employer to move money at least between a stock fund and a bond fund, along with ongoing investments into those funds, then I'd say I had control over the investments therein. But that's just how I see it.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Tax Loss Harvesting Worth it?

Post by Greenman72 » Fri Aug 09, 2019 6:04 am

fortyofforty wrote:
Thu Aug 08, 2019 5:58 pm
...how about investments owned by a husband and investments owned by a wife, in their names only, in separate accounts. Then, husband sells at a loss and wife buys same exact investment in her individual account. Wash sale? Allowed by IRS? :confused
The husband and wife are (presumably) one taxpayer. A sale by the husband and simultaneous purchase by the wife would be considered a wash sale. Again, it's highly unlikely that anybody would ever pick that up, though.

And I don't know why people are arguing about a wash sale inside a 401k. The law says that the sale has to create a tax deduction to be considered a wash sale. A sale of a fund inside a 401k or IRA does not create any kind of tax deduction. For tax purposes, that isn't even a transaction. For 401k's and IRA's, the IRS only cares about cash flows into or out of the plan.

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