Richard1580 wrote: ↑
Thu Nov 07, 2019 12:28 pm
It can also be very useful when rebalancing. I was able to use TLH at the end of last year when the market tanked to make some major adjustments to the holdings in my AA. As a result, what would have been a five-figure capital gain was reduced to four-figures.
Tax loss harvesting has its uses, but I think its benefits are often exaggerated.
N.B. In the year harvested, capital losses (ST+LT total)
--offset capital gains (ST+LT total) dollar-for-dollar,
--then any remainder offsets $3K of ordinary income in the same year.
--Any remainder carries forward to offset ordinary income at $3K/yr.
Student exercise. There are lots of rules associated with TLHing that can result in minor gotchas if done wrong, but nothing too critical---more like touching a hot horseshoe and we quickly learn not to do that again. And we can recover from most TLH gotchas by additional learning and a second TLH.
I've found it helpful to create/use a "transactions checklist to avoid gotchas" that reminds me of all of the requirements associated with any transaction (buying, selling/TLHing): IRS requirements (holding period requirements (LTCG, QDI,TE dividends (monthly/daily accrual),...), reinvested distributions in family accounts,...), fund family requirements (admiral shares limit, frequent trading policy, daily transaction limit,...), banking requirements (account limits to avoid fees, transactions with fees,...), ACH requirements (processing time, limits,...). I've previously posted my transactions checklist.
Bottom line. Try a few small TLHs just to learn the mechanism and create your own "transactions checklist to avoid gotchas".
--Your first small TLH will have a seemingly steep learning curve. (Many request a forum review before executing.)
--Your second small TLH will go more smoothly.
--You'll be an expert by your 3rd small TLH.
Then you can decide if future TLHing is worth your effort. (I believe... a large TLH, offsetting a large CG resulting from rebalancing, when our heirs get a stepped up cost basis ...is worth it.)
Me? My TLH goal is one-and-done for the year. Assuming no capital gains for the year, then I'll TLH one time to get $3K to offset ordinary income for the year. This larger TLH limit has caused me to miss many smaller TLH opportunities, that cumulatively would have summed to >$3K. (Recall some forum members use a limit of $500/TLH.)
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.