TLH - no brainer?

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hadron
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TLH - no brainer?

Post by hadron » Mon Mar 23, 2020 9:53 pm

I have around 270K worth of losses (around 200K short term) that I can realize in my taxable account. I invest in a 3 fund portfolio so all the loses are in funds that I plan to keep forever. I may not have gains to offset them this year. (I had a bunch last year, but I guess I missed the chance). I still have 45K in losses from a TLH I did in 2018. I understand I can only deduct 3K losses per year.

Should I go ahead and do a TLH? Are there good reason not to?

martint
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Re: TLH - no brainer?

Post by martint » Mon Mar 23, 2020 10:09 pm

I just went through the same philosophical debate with myself:
viewtopic.php?t=308764

TL;DR I decided to offset my losses with a lot of gains in individual stocks and rebalance to index funds. If you don’t have any gains to offset, I’m not sure keeping more than 100 years of income write off (@3k per year) would be all that beneficial.

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TierArtz
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Re: TLH - no brainer?

Post by TierArtz » Mon Mar 23, 2020 10:20 pm

Don't forget that banked losses can be used each year to offset distributed income (sent to settlement account for reinvestment in my case). Distributions can and will occur in bad (down) years. Offset all those, and after that, the $3k/year of earned income reduction starts. Of course, this will be my first year of having more banked losses than projected investment distributions, so go with the consensus - likely bank all you can if you are young enough.

Edited to add: I might be wrong on the above. Perhaps distributed dividends are considered regular income? I need to figure this out better to see how much more TLHing I should be doing. Thanks for bringing it up!

2nd edit: My bad. Dividends are income, not capital gains. I'll still collect some more to make room for adjusting my AA in the future if I wish to sell one asset and by another for "free".

kaneohe
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Re: TLH - no brainer?

Post by kaneohe » Mon Mar 23, 2020 11:00 pm

TierArtz wrote:
Mon Mar 23, 2020 10:20 pm
Don't forget that banked losses can be used each year to offset distributed income (sent to settlement account for reinvestment in my case). Distributions can and will occur in bad (down) years. Offset all those, and after that, the $3k/year of earned income reduction starts. Of course, this will be my first year of having more banked losses than projected investment distributions, so go with the consensus - likely bank all you can if you are young enough.

Edited to add: I might be wrong on the above. Perhaps distributed dividends are considered regular income? I need to figure this out better to see how much more TLHing I should be doing. Thanks for bringing it up!
capital losses can only be taken directly against capital gains, in "unlimited amounts" subject to how much capital losses you have but not against dividends (see Sch D). You can take excess capital losses against other income in the limited amount of 3K annually but that would be against ordinary income first , not qualified dividends. It is a bit confusing because LT capital GAINS and qualified dividends are lumped together for figuring taxes (if they are positive).

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hadron
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Re: TLH - no brainer?

Post by hadron » Tue Mar 24, 2020 10:40 pm

Can I use this year's losses to offset any future gains or can it only be used to offset 3k of ordinary income per year?

annu
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Re: TLH - no brainer?

Post by annu » Wed Mar 25, 2020 12:01 am

Man, yes, you can use this years losses to offset future gains or limit of 3k income every year.

I feel like not doing tlh either, but was called foolish, as I felt it lower the cost basis as I intend on ot using this money anytime soon. So beware of saying tlh is not the best thing to have ever happened to you and not planning to use this opportunity to the max :beer

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grabiner
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Re: TLH - no brainer?

Post by grabiner » Wed Mar 25, 2020 10:11 am

hadron wrote:
Tue Mar 24, 2020 10:40 pm
Can I use this year's losses to offset any future gains or can it only be used to offset 3k of ordinary income per year?
Yes, you can use them to offset future gains, and you will probably have gains eventually, even in your "forever" funds. I bought a home in 2013 and sold stock at a market peak to make the down payment; thanks to carryovers from 2008-2009, I didn't owe any federal tax on the capital gain. (I lived in NJ at the time, which does not allow carryovers, so I did owe some NJ tax.)
Wiki David Grabiner

Topic Author
hadron
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Re: TLH - no brainer?

Post by hadron » Wed Mar 25, 2020 1:58 pm

grabiner wrote:
Wed Mar 25, 2020 10:11 am
hadron wrote:
Tue Mar 24, 2020 10:40 pm
Can I use this year's losses to offset any future gains or can it only be used to offset 3k of ordinary income per year?
Yes, you can use them to offset future gains, and you will probably have gains eventually, even in your "forever" funds. I bought a home in 2013 and sold stock at a market peak to make the down payment; thanks to carryovers from 2008-2009, I didn't owe any federal tax on the capital gain. (I lived in NJ at the time, which does not allow carryovers, so I did owe some NJ tax.)
Thanks a lot. That is useful info. I had a rental sale last year on which I owe taxes on 200K CG this year. Too bad I can't use this downturn to offset those gains.

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