Please help me understand wash sales

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treebeard_
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Please help me understand wash sales

Post by treebeard_ » Thu Mar 26, 2020 8:00 am

Hi Bogleheads,

First off I want to say thanks for all the help I've received in the past, I now have a good headstart on investing, and understand various asset classes / portfolios / index investing much better now.

I've got a small amount of funds on VTSAX in a taxable account, with capital losses, that I am trying to TLH due to the recent stock market drop.

These shares were all exchanged from VTWAX (all lots) to VTSAX (one buy lot on vanguard) on March 4 (I prefer a fixed us/intl ratio over floating). I put in an exchange for VTSAX to VFIAX today (March 26) for the one lot of VTSAX.

Is this considered a wash sale since the VTSAX buy was less than 30 days from my sell for TLH? Or would it only be a wash sale if I had other lots that I didn't sell? Or, only if I rebuy VTSAX within 30 days from today? I think I'm missing something here.

Hopefully someone can clear this up for me, or provide examples of the "30 days before" rule. What I'm reading in articles is confusing me more honestly. Thank you!

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Peculiar_Investor
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Re: Please help me understand wash sales

Post by Peculiar_Investor » Thu Mar 26, 2020 8:02 am

treebeard_ wrote:
Thu Mar 26, 2020 8:00 am
Hopefully someone can clear this up for me, or provide examples of the "30 days before" rule. What I'm reading in articles is confusing me more honestly. Thank you!
Have you read the wiki article Wash sale?
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livesoft
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Re: Please help me understand wash sales

Post by livesoft » Thu Mar 26, 2020 8:02 am

This is not considered a wash sale. However, VTSAX paid a dividend. What happened to your dividend?
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Wiggums
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Re: Please help me understand wash sales

Post by Wiggums » Thu Mar 26, 2020 8:07 am

livesoft wrote:
Thu Mar 26, 2020 8:02 am
This is not considered a wash sale. However, VTSAX paid a dividend. What happened to your dividend?
+1

Did you sell at a loss? Are those funds substantially the same?

Topic Author
treebeard_
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Re: Please help me understand wash sales

Post by treebeard_ » Thu Mar 26, 2020 8:07 am

Thanks. I have read the wiki, but still confused about my described scenario, and what 'replacement shares' are.

Also, I just noticed the dividend was reinvested yesterday. I cancelled the VTSAX sell order until I get some more clarity. I now see 2 buy lots for VTSAX, one with all of the losses from 3/4, and the dividend reinvest from 3/25 with a tiny bit of gains. Can I exchange both of these lots right now for VFIAX to claim the losses, then wait 30 days before exchanging back? If not, how should I go about this?

And should I set dividends to pay out in cash if I want to TLH?
Last edited by treebeard_ on Thu Mar 26, 2020 8:11 am, edited 1 time in total.

livesoft
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Re: Please help me understand wash sales

Post by livesoft » Thu Mar 26, 2020 8:11 am

Yes, you can exchange both lots into VFIAX and it will not be a constructive wash sale. But a wash sale is not illegal, so I wouldn't worry about it.

You may not wish to exchange back to VTSAX in 30 days if your new shares of VFIAX go up 30% (or 5% or 10%).

Whether you have dividends automatically reinvested or not is a personal choice. Some folks are math impaired and tax form impaired, so they may make a different choice than others without impairments. No part of your dividend will be qualified if you exchange out soon. Please read IRS Publication 550 for more details.
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Topic Author
treebeard_
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Re: Please help me understand wash sales

Post by treebeard_ » Thu Mar 26, 2020 8:15 am

I think I got it now. But, could I get an example of a "30 days before" wash sale?

Edit: wiki answers my Q.

(If you use Specific identification of shares, you can avoid the effect of a wash sale on a reinvestment in the last 30 days by selling those shares; even if your brokerage says that you have a wash sale, you retain the loss because you sold the replacement shares at the same time.)

So selling the dividend reinvest at the same time is what makes part of this not a wash sale. But if I were to only sell the lot from 3/4 and not the 3/25 lot, what would be the tax consequence of this? I can't claim a loss on any of the 3/4 lot sale, for now?

livesoft
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Re: Please help me understand wash sales

Post by livesoft » Thu Mar 26, 2020 8:19 am

Example: You sell your first lot of VTSAX, but keep the 2nd lot that was created by the automated dividend reinvestment. That would create a wash sale in the amount of the number of the 2nd lot's shares. Indeed, Vanguard.com will probably indicate this small wash sale and take care of it for you when the 2nd lot is sold a nano-second later.

More examples: viewtopic.php?t=179414
can't claim a loss on any of the 3/4 lot sale, for now?
Totally untrue because you used the word "any."
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treebeard_
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Re: Please help me understand wash sales

Post by treebeard_ » Thu Mar 26, 2020 8:21 am

livesoft wrote:
Thu Mar 26, 2020 8:19 am
Example: You sell your first lot of VTSAX, but keep the 2nd lot that was created by the automated dividend reinvestment. That would create a wash sale in the amount of the number of the 2nd lot's shares. Indeed, Vanguard.com will probably indicate this small wash sale and take care of it for you when the 2nd lot is sold a nano-second later.

More examples: viewtopic.php?t=179414
can't claim a loss on any of the 3/4 lot sale, for now?
Totally untrue.
Thank you so much! This makes a lot more sense now.

And, I wouldn't be able to claim a loss on the 3/4 lot, for the amount of the 3/25 lot, for now. Got it.

livesoft
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Re: Please help me understand wash sales

Post by livesoft » Thu Mar 26, 2020 8:26 am

Furthermore, not often noted is that any temporarily disallowed loss from the wash sale is kept until the shares the created the wash sale are sold whereupon the loss is allowed --- as long as the shares the created the wash sale are also in a taxable account.
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livesoft
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Re: Please help me understand wash sales

Post by livesoft » Thu Mar 26, 2020 8:29 am

And now that you understand wash sales: Pay it forward. You MUST answer the next 10 threads started about wash sales. Thank you.
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Topic Author
treebeard_
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Re: Please help me understand wash sales

Post by treebeard_ » Thu Mar 26, 2020 8:32 am

livesoft wrote:
Thu Mar 26, 2020 8:26 am
Furthermore, not often noted is that any temporarily disallowed loss from the wash sale is kept until the shares the created the wash sale are sold whereupon the loss is allowed --- as long as the shares the created the wash sale are also in a taxable account.
Yup, got this from my reading online. It all makes sense now.
livesoft wrote:
Thu Mar 26, 2020 8:29 am
And now that you understand wash sales: Pay it forward. You MUST answer the next 10 threads started about wash sales. Thank you.
Haha, I'll try my best.

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