TLH VTIAX and avoiding wash sale for recent purchase

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jomama341
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TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 8:54 am

I've accrued substantial losses with VTIAX and want to do some tax loss harvesting. My plan was to sell the shares in my taxable account and purchase VFWAX. However, I have a few questions:
  • Is VFWAX an acceptable alternative so as not to trigger a wash sale?
  • Can I use Vanguard's "Exchange" feature to convert the VTIAX shares to VFWAX or should I sell them for cash and then use the cash to purchase VFWAX?
  • In addition to my taxable account, I also hold VTIAX in a 401k and a Roth. As long as I don't purchase new shares within those accounts, can I keep those positions as-is or do I need to liquidate them as well?
  • Stupidly, I had VTIAX set for automatic reinvestment on my taxable account and it purchased a new position on March 20th. How can I proceed without triggering a wash sale?
Thanks in advance for your help.

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BogleFanGal
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by BogleFanGal » Thu Mar 26, 2020 9:03 am

I'm sure others will chime in, but just to say I'm in the same boat as you- wanted to TLH in taxable, but had dividend auto reinvest as the default in 1 IRA and new shares were purchased before I could shut it off this past weekend. (Mistakenly thought the payout was THIS week.) :oops:

I'm just going to wait out the next 30 days. Odds are, the market's still going to be down - I strongly suspect I'll be able to TLH just fine at end of April. If I'm wrong and VTIAX bounced back, all the better.
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livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 9:13 am

Check out this thread from less than an hour ago:
viewtopic.php?f=1&t=309598&newpost=5134411
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jomama341
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 9:21 am

livesoft wrote:
Thu Mar 26, 2020 9:13 am
Check out this thread from less than an hour ago:
viewtopic.php?f=1&t=309598&newpost=5134411
This is really helpful, thanks. A little strange that they'd be going from VTSAX to VFWAX, but to each their own I suppose.

My situation is further complicated by the existence of VTIAX in my tax-advantaged accounts. How should I handle those? I checked again and it looks like I also had automatic reinvestment set in my Roth, so there's a new lot purchased a few days ago in there. What do I need to do, if anything with those shares? As well as the shares in my 401(k).

livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 9:22 am

How many new shares of VTIAX were purchased in your IRAs in the past 30 days?
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jomama341
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 9:27 am

livesoft wrote:
Thu Mar 26, 2020 9:22 am
How many new shares of VTIAX were purchased in your IRAs in the past 30 days?
Roth: 7.4 shares purchased on 3/20
401(k) #1: 0.08 shares purchased on 3/23
401(k) #2: 5.3 shares purchased on 3/23

livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 9:30 am

If you sell in taxable your VTIAX shares at a loss, then you will have to disallow the loss of 7.4 shares of VTIAX on your tax return.
See also viewtopic.php?p=2773041#p2773041

This assumes the 7.4 shares include all the shares purchased by any means in your Roth IRA. Also it assumes that no additional shares of VTIAX will be purchased in the 30 days after you sell for a loss in your taxable account.

In other words, I don't see any point in avoiding an inconsequential wash sale.
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rkhusky
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by rkhusky » Thu Mar 26, 2020 9:51 am

Disallow 12.78 shares or sell all VTIAX in IRA and 401k before doing TLH in taxable.

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jomama341
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 10:09 am

rkhusky wrote:
Thu Mar 26, 2020 9:51 am
Disallow 12.78 shares or sell all VTIAX in IRA and 401k before doing TLH in taxable.
I think I'm going to need to sell all my VTIAX across my tax advantaged accounts because my two 401(k)'s will not allow me to turn off automatic reinvestment of dividends/cap gains.

As far as order of operations goes, do I need to wait for VTIAX shares to liquidate in the other accounts or do I just need to initiate that process first before selling taxable shares?

rkhusky
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by rkhusky » Thu Mar 26, 2020 10:26 am

I think you would be fine submitting the orders the same day, but I still would wait one day to be safe.

livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 10:32 am

jomama341 wrote:
Thu Mar 26, 2020 10:09 am
rkhusky wrote:
Thu Mar 26, 2020 9:51 am
Disallow 12.78 shares or sell all VTIAX in IRA and 401k before doing TLH in taxable.
I think I'm going to need to sell all my VTIAX across my tax advantaged accounts because my two 401(k)'s will not allow me to turn off automatic reinvestment of dividends/cap gains.

As far as order of operations goes, do I need to wait for VTIAX shares to liquidate in the other accounts or do I just need to initiate that process first before selling taxable shares?
So your highest price for VTIAX was probably no more than $28 a share and today it might sell for $23 a share or a $5 loss per share. With 13 shares washed that would be a disallowed loss of no more than $65. The tax savings on $65 might $15 to $20. So you are telling me that you are going to do all this selling in the Roth IRA and the 401(k) to avoid losing less than $20 in tax savings?
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jomama341
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 10:36 am

[/quote]
So your highest price for VTIAX was probably no more than $28 a share and today it might sell for $23 a share or a $5 loss per share. With 13 shares washed that would be a disallowed loss of no more than $65. The tax savings on $65 might $15 to $20. So you are telling me that you are going to do all this selling in the Roth IRA and the 401(k) to avoid losing less than $20 in tax savings?
[/quote]

I guess I'm still unclear on how the disallowed losses work. If I only stand to lose out on $15-20 for the older shares, then it's not worth liquidating. However, I am concerned about the potential implications of what would happen if my 401k's automatically reinvest some dividends in VTIAX in the next 30 days. Would that completely cancel out the TLH or just deduct the cost-basis of the new shares from the loss I harvest?

livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 10:40 am

When did VTIAX pay a dividend? The chances of another dividend in the next 60 days is zero. Of course, you may have your contributions set to buy more VTIAX from paychecks. It should be simple enough to not do that.
Would that completely cancel out the TLH or just deduct the cost-basis of the new shares from the loss I harvest?
Neither of those things.

I'll let someone else explain how partial wash sales work. The IRS has an explanation in IRS Publication 550. Knowledge is power.
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rkhusky
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by rkhusky » Thu Mar 26, 2020 11:05 am

If you sell 1000 shares in a TLH operation, but have 15 shares purchased in a Roth IRA that cause a wash sale, you can still claim the loss on 985 shares.

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jomama341
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by jomama341 » Thu Mar 26, 2020 11:29 am

Thanks. This is really all I need to know.

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BogleFanGal
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by BogleFanGal » Thu Mar 26, 2020 11:35 am

Unless i misunderstood, I thought I read that there were harsher penalties when inadvertent purchases occur during 61 day window in pre-tax/retirement accounts when TLHing in taxable... vs mistakes made just within taxable accounts?
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livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 11:38 am

BogleFanGal wrote:
Thu Mar 26, 2020 11:35 am
Unless i misunderstood, I thought I read that there were harsher penalties when inadvertent purchases occur during 61 day window in pre-tax/retirement accounts when TLHing in taxable... vs mistakes made just within taxable accounts?
Must be a misunderstanding. There are no penalties ever. I would not use the word "harsher" at all. I might write something like, "A loss can be permanently disallowed instead of temporarily disallowed ..., but who cares when the permanently disallowed loss is negligible. Besides, the final extra cost is only the tax savings lost on the permanently disallowed loss."
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by BogleFanGal » Thu Mar 26, 2020 12:14 pm

livesoft wrote:
Thu Mar 26, 2020 11:38 am
BogleFanGal wrote:
Thu Mar 26, 2020 11:35 am
Unless i misunderstood, I thought I read that there were harsher penalties when inadvertent purchases occur during 61 day window in pre-tax/retirement accounts when TLHing in taxable... vs mistakes made just within taxable accounts?
Must be a misunderstanding. There are no penalties ever. I would not use the word "harsher" at all. I might write something like, "A loss can be permanently disallowed instead of temporarily disallowed ..., but who cares when the permanently disallowed loss is negligible. Besides, the final extra cost is only the tax savings lost on the permanently disallowed loss."
ok...thanks for clarifying. My first foray into this and some articles had mentioned to be extra careful when IRAs are involved, as the consequences for accidental wash sale mistakes could be more serious.
"Life would be infinitely happier if we could only be born at the age of eighty and gradually approach eighteen." Mark Twain

livesoft
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Re: TLH VTIAX and avoiding wash sale for recent purchase

Post by livesoft » Thu Mar 26, 2020 12:20 pm

BogleFanGal wrote:
Thu Mar 26, 2020 12:14 pm
ok...thanks for clarifying. My first foray into this and some articles had mentioned to be extra careful when IRAs are involved, as the consequences for accidental wash sale mistakes could be more serious.
Well, sure consequences could be more serious. Case in point: Sell 10,000 shares of VTIAX in taxable for a $50,000 deductible loss, but the next day, buy 10,000 shares in your IRA. Ouch! The entire $50,000 loss is no longer deductible.
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