Should I TLH this?

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Topic Author
mc2
Posts: 142
Joined: Wed Jan 13, 2016 10:27 am

Should I TLH this?

Post by mc2 » Mon Mar 23, 2020 8:37 am

Here’s my taxable account:

VWITX. $2000 ST losses
VLCAX. $200 ST loss. $600 long term loss
VMLUX. $75 ST loss. $3800 long loss
VTSAX. $500 LT loss

Should I tax loss harvest these?

FWIW. I don’t foresee having any capital gains. Mainly interest from money market accounts.

lakpr
Posts: 4456
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TLH this?

Post by lakpr » Mon Mar 23, 2020 10:57 am

That's $6675 in losses, which you can easily use to offset your income for the next 3 years
At a 22% tax rate that is about $1450 in tax savings.

I would definitely tax-loss harvest them.

My suggestions for tax-loss-harvesting partners below.

VWITX and VMLUX ==> VSIGX (intermediate term treasuries index fund, which preserves the tax-exempt nature at least at the state & local level)
VLCAX and VTSAX ==> VFIAX (500 index fund).

Topic Author
mc2
Posts: 142
Joined: Wed Jan 13, 2016 10:27 am

Re: Should I TLH this?

Post by mc2 » Mon Mar 23, 2020 11:36 am

lakpr wrote:
Mon Mar 23, 2020 10:57 am
That's $6675 in losses, which you can easily use to offset your income for the next 3 years
At a 22% tax rate that is about $1450 in tax savings.

I would definitely tax-loss harvest them.

My suggestions for tax-loss-harvesting partners below.

VWITX and VMLUX ==> VSIGX (intermediate term treasuries index fund, which preserves the tax-exempt nature at least at the state & local level)
VLCAX and VTSAX ==> VFIAX (500 index fund).
Thank you.
If I have no sale of any stocks/funds in future years, will the carryovers reduce my income tax-or does there need to be fund sales each year?

DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: Should I TLH this?

Post by DSInvestor » Mon Mar 23, 2020 11:39 am

Realized capital losses can be used to offset capital gains, then if some loss still remains, up to $3000 can be used to reduce your ordinary income. If capital loss still remains, the losses carry forward to next tax year. Rinse and repeat until losses are used up.

See schedule D for details.
https://www.irs.gov/pub/irs-pdf/f1040sd.pdf
Wiki

lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TLH this?

Post by lakpr » Mon Mar 23, 2020 11:55 am

DSInvestor has already answered the question, but here goes.

1. If there are short term gains, they first offset short term losses. And vice versa.
2. If there are long term gains, they first offset long term losses. And vice versa.
3. If there are short term gains/losses left, then they are first offset against long term gains/losses.
4. If there are any losses still left, they can be used $3000 per year until the losses are exhausted.
5. If there are any short term / long term gains left, they are then taxed appropriately (ordinary income tax rates or LTCG rates).

So based on your "no sale of any stocks/funds in future years", yes the carry overs will reduce your income tax on ordinary income. But the max is only $3000 per year. If there are any fund sales either in 2020 or future years, one of the (1), (2), (3) cases will trigger before you get to (4). You don't have a choice to apply the losses only against ordinary income (case 4). That particular sequence of tests must be followed.

Topic Author
mc2
Posts: 142
Joined: Wed Jan 13, 2016 10:27 am

Re: Should I TLH this?

Post by mc2 » Mon Mar 23, 2020 6:26 pm

Thanks.

That was my fairly inexperienced understanding. I appreciate the confirmation.

Cheers, peace and sanity to all.

annu
Posts: 396
Joined: Mon Nov 04, 2019 7:55 pm

Re: Should I TLH this?

Post by annu » Mon Mar 23, 2020 7:34 pm

lakpr wrote:
Mon Mar 23, 2020 10:57 am
That's $6675 in losses, which you can easily use to offset your income for the next 3 years
At a 22% tax rate that is about $1450 in tax savings.

I would definitely tax-loss harvest them.

My suggestions for tax-loss-harvesting partners below.

VWITX and VMLUX ==> VSIGX (intermediate term treasuries index fund, which preserves the tax-exempt nature at least at the state & local level)
VLCAX and VTSAX ==> VFIAX (500 index fund).
What will you recommend for vwltx, https://investor.vanguard.com/mutual-fu ... view/vwltx long term tax exempt. I have a lot more losses there.

lakpr
Posts: 4456
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TLH this?

Post by lakpr » Mon Mar 23, 2020 9:13 pm

annu wrote:
Mon Mar 23, 2020 7:34 pm
What will you recommend for vwltx, https://investor.vanguard.com/mutual-fu ... view/vwltx long term tax exempt. I have a lot more losses there.
Long term treasuries. VUSTX.

Topic Author
mc2
Posts: 142
Joined: Wed Jan 13, 2016 10:27 am

Re: Should I TLH this?

Post by mc2 » Mon Mar 23, 2020 11:26 pm

lakpr wrote:
Mon Mar 23, 2020 10:57 am
That's $6675 in losses, which you can easily use to offset your income for the next 3 years
At a 22% tax rate that is about $1450 in tax savings.

I would definitely tax-loss harvest them.

My suggestions for tax-loss-harvesting partners below.

VWITX and VMLUX ==> VSIGX (intermediate term treasuries index fund, which preserves the tax-exempt nature at least at the state & local level)
VLCAX and VTSAX ==> VFIAX (500 index fund).
DW and I each contribute into VFIAX with paycheck contributions to 401k/403b plans. Does that prevent me from using VFIAX in taxable?

lakpr
Posts: 4456
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TL ?

Post by lakpr » Tue Mar 24, 2020 8:05 am

mc2 wrote:
Mon Mar 23, 2020 11:26 pm
DW and I each contribute into VFIAX with paycheck contributions to 401k/403b plans. Does that prevent me from using VFIAX in taxable?
Firstly, you are BUYING VFIAX, not selling it, so it does not prevent you from buying VFIAX as a tax-loss-harvest partner. If in the future you do sell out of VFIAX again for a tax-loss, then PERHAPS, but see my second point below.

Secondly, given that the IRS has not made any explicit ruling about the 401k/403b plans, but only mentioned "taxable accounts, IRAs and Corporate accounts that you control" -- my opinion is that it 401k/403b plans are not considered in wash sale rules.

I take the stance that, that which is not explicitly prohibited is implicitly allowed. IRS had framed the wash sale rules for over 30 years, and over the past 30 years there hasn't been a single instance of a tax court ruling or IRS guidance that would consider retirement accounts as part of the wash sale rules. My expectation is that they aren't going to begin now either. If IRS wanted to include retirement plans in the scope of wash sale rules, they had 30 years to do so, and did not do so.

annu
Posts: 396
Joined: Mon Nov 04, 2019 7:55 pm

Re: Should I TLH this?

Post by annu » Tue Mar 24, 2020 10:33 am

lakpr wrote:
Mon Mar 23, 2020 9:13 pm
annu wrote:
Mon Mar 23, 2020 7:34 pm
What will you recommend for vwltx, https://investor.vanguard.com/mutual-fu ... view/vwltx long term tax exempt. I have a lot more losses there.
Long term treasuries. VUSTX.
Thanks.... :sharebeer

September
Posts: 103
Joined: Tue Nov 11, 2008 10:40 am

Re: Should I TLH this?

Post by September » Tue Mar 24, 2020 10:53 am

annu wrote:
Tue Mar 24, 2020 10:33 am
lakpr wrote:
Mon Mar 23, 2020 9:13 pm
annu wrote:
Mon Mar 23, 2020 7:34 pm
What will you recommend for vwltx, https://investor.vanguard.com/mutual-fu ... view/vwltx long term tax exempt. I have a lot more losses there.
Long term treasuries. VUSTX.
Thanks.... :sharebeer
VUSTX is almost at all time high, is it a good time to buy this fund?

annu
Posts: 396
Joined: Mon Nov 04, 2019 7:55 pm

Re: Should I TLH this?

Post by annu » Tue Mar 24, 2020 12:16 pm

I am not making any changes, at all. Done with this up/down/up/down/down/up/up/down :oops: cycle. Did TLH once, and now will just not do anything until either shit hits the fan completely, so technically dont need to do nothing, or everything improves and miss on this awesome recovery and not retire in 2021....I will somehow survive working few more years :D

lakpr
Posts: 4456
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TLH this?

Post by lakpr » Tue Mar 24, 2020 2:17 pm

annu wrote:
Tue Mar 24, 2020 12:16 pm
I am not making any changes, at all. Done with this up/down/up/down/down/up/up/down :oops: cycle. Did TLH once, and now will just not do anything until either shit hits the fan completely, so technically dont need to do nothing, or everything improves and miss on this awesome recovery and not retire in 2021....I will somehow survive working few more years :D
I would say it is foolish not to do tax-loss-harvesting opportunity if you have the chance to do it. As had been said in other threads, this is additional tax-deferral you are doing really. Why pay tax now when you don't have to, you can do so at a later date and time of your own choosing?

To answer @September, price of the fund you are tax loss harvesting to is irrelevant. That's what the market has set the fair price of the fund to be. If you intend to do only TLH and return back to VWLTX after 31 days have elapsed, you are free to do so, else continue with VUSTX. Long term treasuries are practically default proof, the only risk it faces is the interest rate risk; if the interest rate raises by 25 basis points, since the average maturity of this fund is 15 years, your losses would be 15 * 0.25 = 3.75%. But then, in such a scenario, so would the VWLTX.

September
Posts: 103
Joined: Tue Nov 11, 2008 10:40 am

Re: Should I TLH this?

Post by September » Tue Mar 24, 2020 2:55 pm

lakpr wrote:
Tue Mar 24, 2020 2:17 pm
annu wrote:
Tue Mar 24, 2020 12:16 pm
I am not making any changes, at all. Done with this up/down/up/down/down/up/up/down :oops: cycle. Did TLH once, and now will just not do anything until either shit hits the fan completely, so technically dont need to do nothing, or everything improves and miss on this awesome recovery and not retire in 2021....I will somehow survive working few more years :D
I would say it is foolish not to do tax-loss-harvesting opportunity if you have the chance to do it. As had been said in other threads, this is additional tax-deferral you are doing really. Why pay tax now when you don't have to, you can do so at a later date and time of your own choosing?

To answer @September, price of the fund you are tax loss harvesting to is irrelevant. That's what the market has set the fair price of the fund to be. If you intend to do only TLH and return back to VWLTX after 31 days have elapsed, you are free to do so, else continue with VUSTX. Long term treasuries are practically default proof, the only risk it faces is the interest rate risk; if the interest rate raises by 25 basis points, since the average maturity of this fund is 15 years, your losses would be 15 * 0.25 = 3.75%. But then, in such a scenario, so would the VWLTX.
Thanks for your response. I did TLH of my VWLUX (vanguard long-term tax exempt fund admiral) yesterday and it went into my bank account instead of other funds. This money was originally planed to use for my mortgage payment, but I was late to act since I saw the price went up a lot with the yield dropping recently. Feel really stupid for not taking it out two weeks ago. So is VUSTX the right fund to exchange to? I hold VWULX in my taxable account. How does VUSTX compare to TSP G fund? I have access to G fund in my retirement account.

lakpr
Posts: 4456
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I TLH this?

Post by lakpr » Tue Mar 24, 2020 3:03 pm

September wrote:
Tue Mar 24, 2020 2:55 pm
How does VUSTX compare to TSP G fund? I have access to G fund in my retirement account.
If you do have access to G-fund, I suggest you get everything in there like yesterday!

G-fund is as close to the free lunch as there is in this world. As I understand it, this fund essentially returns intermediate-term yield to the holders without the inherent term-risk, because the Federal government has the ability to simply print more dollars if need be. As a result, the fund will NEVER lose value, and anyone who invests in the G-fund will never (at least in nominal terms) never get less than what they put into the fund. For thos who have access, anytime is the right time to invest into this fund.

At times the yield sucks on the G-fund and makes you wish that you had invested in the F fund (equivalent to the Total Bond Market fund) instead, but then when you take into account the risk that the interest rates might change and cause havoc with your investment in the fund, you would be thankful that you chose G-fund, with its implicit guarantee of never losing money.

September
Posts: 103
Joined: Tue Nov 11, 2008 10:40 am

Re: Should I TLH this?

Post by September » Tue Mar 24, 2020 3:24 pm

lakpr wrote:
Tue Mar 24, 2020 3:03 pm
September wrote:
Tue Mar 24, 2020 2:55 pm
How does VUSTX compare to TSP G fund? I have access to G fund in my retirement account.
If you do have access to G-fund, I suggest you get everything in there like yesterday!

G-fund is as close to the free lunch as there is in this world. As I understand it, this fund essentially returns intermediate-term yield to the holders without the inherent term-risk, because the Federal government has the ability to simply print more dollars if need be. As a result, the fund will NEVER lose value, and anyone who invests in the G-fund will never (at least in nominal terms) never get less than what they put into the fund. For thos who have access, anytime is the right time to invest into this fund.

At times the yield sucks on the G-fund and makes you wish that you had invested in the F fund (equivalent to the Total Bond Market fund) instead, but then when you take into account the risk that the interest rates might change and cause havoc with your investment in the fund, you would be thankful that you chose G-fund, with its implicit guarantee of never losing money.
Yes you are correct! The yield on the G-fund can be dismal at times but the F fund dropped recently when the stock dropped too. I listened to folks on this forum and didn't invest in the F fund. That's why I didn't invest in the TSP target funds as they all have the F-fund. Now what to do with the cash? I was trying to chase the yield by putting some money in VWULX. My mortgage doesn't have much left, and I still have cash left to invest after paying off the mortgage.

annu
Posts: 396
Joined: Mon Nov 04, 2019 7:55 pm

Re: Should I TLH this?

Post by annu » Tue Mar 24, 2020 7:32 pm

lakpr wrote:
Tue Mar 24, 2020 2:17 pm
annu wrote:
Tue Mar 24, 2020 12:16 pm
I am not making any changes, at all. Done with this up/down/up/down/down/up/up/down :oops: cycle. Did TLH once, and now will just not do anything until either shit hits the fan completely, so technically dont need to do nothing, or everything improves and miss on this awesome recovery and not retire in 2021....I will somehow survive working few more years :D
I would say it is foolish not to do tax-loss-harvesting opportunity if you have the chance to do it. As had been said in other threads, this is additional tax-deferral you are doing really. Why pay tax now when you don't have to, you can do so at a later date and time of your own choosing?

To answer @September, price of the fund you are tax loss harvesting to is irrelevant. That's what the market has set the fair price of the fund to be. If you intend to do only TLH and return back to VWLTX after 31 days have elapsed, you are free to do so, else continue with VUSTX. Long term treasuries are practically default proof, the only risk it faces is the interest rate risk; if the interest rate raises by 25 basis points, since the average maturity of this fund is 15 years, your losses would be 15 * 0.25 = 3.75%. But then, in such a scenario, so would the VWLTX.
I never plan on selling, infact this is part of what we plan to leave for our kids, so one factor I felt was, lowering cost basis will increase gains for them. But already done enough foolish things in life, one more is not going to be that bad

Tracy
Posts: 22
Joined: Fri Mar 01, 2013 2:09 am

Re: Should I TLH this?

Post by Tracy » Wed Mar 25, 2020 4:04 am

annu wrote:
Tue Mar 24, 2020 7:32 pm
I never plan on selling, infact this is part of what we plan to leave for our kids, so one factor I felt was, lowering cost basis will increase gains for them. But already done enough foolish things in life, one more is not going to be that bad
The cost basis for stock you leave to your heirs is not your cost basis. The cost basis for heirs is "stepped-up"; it is the market value of the stock on the date of death. Here's a brief article explaining it: How to Calculate the Basis for Inherited Stock. So tax loss harvesting will not increase gains for your heirs.

annu
Posts: 396
Joined: Mon Nov 04, 2019 7:55 pm

Re: Should I TLH this?

Post by annu » Wed Mar 25, 2020 11:32 pm

Just wanted to post, as I was wrong, after more research, did tlh vwiux and vwlux, for now just out the money in money market, and will invest into voo starting next pay check

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