Planning for capital loss carryover with this market

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international001
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Planning for capital loss carryover with this market

Post by international001 » Tue Mar 24, 2020 1:51 pm

Hi,

I may realize this year a loss of $30k, mix of LT and ST. Assume my tax bracket > LTCG bracket

For 2020 tax return, can I deduct all ST losses from my regular income? My understanding is no, and I can only use $3k of losses (whether LT or ST) to be deducted against my regular income

For 9 years in the future, I can keep using $3k to be deducted against my regular income. I can choose which year to do it and which year. So if I do it on 2021, 2023, etc.. it will take me 17 years to use my loss carryover

Loss carryover are used first against capital gains, right? Then, I should be careful not realize any LTCG when I use it . So in the example above, I could realize LTCG on 2022, 2024, etc.. (I have some individual stock I want to sell)

Is my understanding (and my strategy) right?

jebmke
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Re: Planning for capital loss carryover with this market

Post by jebmke » Tue Mar 24, 2020 1:58 pm

No; you cannot choose when to use the losses.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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MP123
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Re: Planning for capital loss carryover with this market

Post by MP123 » Tue Mar 24, 2020 2:33 pm

international001 wrote:
Tue Mar 24, 2020 1:51 pm
Loss carryover are used first against capital gains, right? Then, I should be careful not realize any LTCG when I use it . So in the example above, I could realize LTCG on 2022, 2024, etc.. (I have some individual stock I want to sell)
The bolded part is correct. After that the carry over loss can be used up to $3k of income (if you have that much loss remaining) and then carried over to the next year.

You don't get a choice about when to use it, but as you point out it will last longer if you don't have any capital gains to offset. If you have a $30k gain this year (in addition to the $30k loss) then it will all be used up offsetting that gain and none will be available to use against regular income.

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international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Tue Mar 24, 2020 9:17 pm

bummer


Then, the good strategy would be not to realize any capital gains 2021-2029 so I can offset it against regular income (wages, taxed at a higher rate). Right?

Also, if I have qualified dividends, the $3k offsets those dividends (taxed at 15%) or the regular income?

Let's assume

2020: $30k cap losses, $1k QDIV, $100k wages
2021: $10k capgain, $1k QDIV, $100k wages

On 2020: I use $3k of the losses to offset the $100k wages
On 2021: I use $10k of the losses to offset the capgain and $3k to offset the $100k wags

Then do I have left $14k left for 2022 onwards?

Or do I offset $1k of QDIV and $2k of wages?

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FiveK
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Re: Planning for capital loss carryover with this market

Post by FiveK » Tue Mar 24, 2020 10:08 pm

international001 wrote:
Tue Mar 24, 2020 9:17 pm
Then, the good strategy would be not to realize any capital gains 2021-2029 so I can offset it against regular income (wages, taxed at a higher rate). Right?
That's one good strategy. If you would like to adjust your asset allocation but don't want to incur the tax it would take to do so, however, another good strategy would be to use the losses to absorb the adjustment gains.
Also, if I have qualified dividends, the $3k offsets those dividends (taxed at 15%) or the regular income?
Regular (aka ordinary) income. See Sched. D and the Qualified Dividends and Capital Gains Tax Worksheet for details.
Let's assume

2020: $30k cap losses, $1k QDIV, $100k wages
2021: $10k capgain, $1k QDIV, $100k wages

On 2020: I use $3k of the losses to offset the $100k wages
On 2021: I use $10k of the losses to offset the capgain and $3k to offset the $100k wags

Then do I have left $14k left for 2022 onwards?

Or do I offset $1k of QDIV and $2k of wages?
Didn't check but you could use one of the US and state income tax calculator tools.

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international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Wed Mar 25, 2020 6:54 am

That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?

jebmke
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Re: Planning for capital loss carryover with this market

Post by jebmke » Wed Mar 25, 2020 7:12 am

international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Look at the Schedule D tax worksheet (the actual tax calculation) and follow the arithmetic carefully. All your answers are on that sheet.
When you discover that you are riding a dead horse, the best strategy is to dismount.

livesoft
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Re: Planning for capital loss carryover with this market

Post by livesoft » Wed Mar 25, 2020 7:18 am

Or you can take realize all possible losses going forward by tax-loss harvesting, carry them over, and not worry about it.

Perhaps only then you will realize that those losses allow you to make rebalancing decisions for your taxable assets without any worry about paying taxes. Those losses will probably reduce your taxes in early retirement to near 0% and allow Roth conversions at near 0% tax instead of whatever you are paying nowadays. I know that in the past our Roth contributions were taxed at 33% and nowadays they basically don't get taxed. That means 0% tax going into tax-deferred and 0% tax converting to Roth. Of course, it is not as simple as I have outlined it, but it works for me.

What is the downside to tax-loss harvesting nowadays anyways? OK, I'll concede that if you buy replacement shares at these prices, then you may never have to tax-loss harvest again. The replacement shares I bought in 2009 (11 years ago) still have unrealized gains today. I have no reason to realize the gains at this time. Folks always say, "But those gains are now more than if you had not TLH'd and will cost you more in taxes" to which I respond, "Maybe, but I can give those shares away or die and not have to pay taxes on them!" And I still have carryover losses to use up from 2009. I'll also concede that $3,000 isn't what it used to be.
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FiveK
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Re: Planning for capital loss carryover with this market

Post by FiveK » Wed Mar 25, 2020 11:39 am

international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.

boomer_techie
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Re: Planning for capital loss carryover with this market

Post by boomer_techie » Wed Mar 25, 2020 10:31 pm

international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not
The -$3000 offsets "total" income. There is not a specific type of income it offsets. It is just a -3K on a line in the section where all your income of different types gets added up. Note though that it does nothing to the QDIV number. Thus, when calculating your tax due using the Sch D worksheet (or the QDCG worksheet), you still calculate with the full QDIV amount. Note further that if you have very little wage and unqualified div income, the -3K could offset all of that plus some QDIVs. At that point, when using the worksheet, one of the "subtract, if less than zero, enter zero" conditionals will trigger.

kaneohe
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Re: Planning for capital loss carryover with this market

Post by kaneohe » Wed Mar 25, 2020 11:02 pm

FiveK wrote:
Wed Mar 25, 2020 11:39 am
international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.
?? the mortgage calculator got $720= 24% of the 3K

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FiveK
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Re: Planning for capital loss carryover with this market

Post by FiveK » Wed Mar 25, 2020 11:08 pm

kaneohe wrote:
Wed Mar 25, 2020 11:02 pm
FiveK wrote:
Wed Mar 25, 2020 11:39 am
international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.
?? the mortgage calculator got $720= 24% of the 3K
Was that using 2019 or 2020 tax brackets? Toolbox spreadsheet has 2020 brackets, and I'm guessing those are the ones of interest here.

kaneohe
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Re: Planning for capital loss carryover with this market

Post by kaneohe » Wed Mar 25, 2020 11:28 pm

FiveK wrote:
Wed Mar 25, 2020 11:08 pm
kaneohe wrote:
Wed Mar 25, 2020 11:02 pm
FiveK wrote:
Wed Mar 25, 2020 11:39 am
international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.
?? the mortgage calculator got $720= 24% of the 3K
Was that using 2019 or 2020 tax brackets? Toolbox spreadsheet has 2020 brackets, and I'm guessing those are the ones of interest here.
You are correct...it's 2019 calculator and with the numbers given the ordinary income gets close to the 22/24% bracket delineation separator.

ChiKid24
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Re: Planning for capital loss carryover with this market

Post by ChiKid24 » Wed Mar 25, 2020 11:40 pm

Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income? This also increases your basis going forward so you'll have a lower tax impact upon the subsequent sale. There is no wash sale rules on gain.

Example: You own VTI at $100 and it falls to $75 and you sell to harvest the tax loss and buy ITOT. If ITOT rises, you sell and offset the gain with the harvested loss. You can then rebuy ITOT or go back into VTI and pay no ordinary taxes on the short term gain while also increasing your basis going forward. You can keep doing this as the market recovers.

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FiveK
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Re: Planning for capital loss carryover with this market

Post by FiveK » Wed Mar 25, 2020 11:51 pm

ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income?
That's feasible. One might instead prefer to offset ordinary income and thus save, e.g., 22% instead of saving the capital gains rate of 15%.

Topic Author
international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Thu Mar 26, 2020 9:58 am

kaneohe wrote:
Wed Mar 25, 2020 11:28 pm
FiveK wrote:
Wed Mar 25, 2020 11:08 pm
kaneohe wrote:
Wed Mar 25, 2020 11:02 pm
FiveK wrote:
Wed Mar 25, 2020 11:39 am
international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not

If I have $100k on wages and $10k on QDIV, how much am I saving by deducting the $3k cap gain loss from regular income? $3k*24%, or $3k*15%?
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.
?? the mortgage calculator got $720= 24% of the 3K
Was that using 2019 or 2020 tax brackets? Toolbox spreadsheet has 2020 brackets, and I'm guessing those are the ones of interest here.
You are correct...it's 2019 calculator and with the numbers given the ordinary income gets close to the 22/24% bracket delineation separator.
I'm confused. I gave an hypothetical example using 24% tax bracket. Where is that 23.4% coming from?

Topic Author
international001
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Joined: Thu Feb 15, 2018 7:31 pm

Re: Planning for capital loss carryover with this market

Post by international001 » Thu Mar 26, 2020 10:00 am

boomer_techie wrote:
Wed Mar 25, 2020 10:31 pm
international001 wrote:
Wed Mar 25, 2020 6:54 am
That didnt answer my questions. QDIV are not included in Sched D
I would like to use the $3k capital gain losses to offset income taxed at my 24% tax bracket. I read that $3k offsets regular income, but I cannot find any place to tell me if QDIVs are included on regular income or not
The -$3000 offsets "total" income. There is not a specific type of income it offsets. It is just a -3K on a line in the section where all your income of different types gets added up. Note though that it does nothing to the QDIV number. Thus, when calculating your tax due using the Sch D worksheet (or the QDCG worksheet), you still calculate with the full QDIV amount. Note further that if you have very little wage and unqualified div income, the -3K could offset all of that plus some QDIVs. At that point, when using the worksheet, one of the "subtract, if less than zero, enter zero" conditionals will trigger.
Thanks. That's what I needed to know, it offsets total income but QDIV is not included on 'total income'

So each 3k of loss it's worth to me 3k*24%
The good strategy would be to postpone to sell any stock in the future years for as long as I can

I guess I'm not familiar with Sch D worksheet because I never used those 3k. Is this what you are talking about : http://www.thetaxbook.com/updates/TheTa ... ksheet.pdf
I don't see 3,000 mentioned any place

jebmke
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Re: Planning for capital loss carryover with this market

Post by jebmke » Thu Mar 26, 2020 10:14 am

this is the tax calculation. The $3,000 is referenced on Schedule D
When you discover that you are riding a dead horse, the best strategy is to dismount.

Topic Author
international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Thu Mar 26, 2020 10:18 am

livesoft wrote:
Wed Mar 25, 2020 7:18 am
Or you can take realize all possible losses going forward by tax-loss harvesting, carry them over, and not worry about it.

Perhaps only then you will realize that those losses allow you to make rebalancing decisions for your taxable assets without any worry about paying taxes. Those losses will probably reduce your taxes in early retirement to near 0% and allow Roth conversions at near 0% tax instead of whatever you are paying nowadays. I know that in the past our Roth contributions were taxed at 33% and nowadays they basically don't get taxed. That means 0% tax going into tax-deferred and 0% tax converting to Roth. Of course, it is not as simple as I have outlined it, but it works for me.
You mean by selling assets on early retirement and offsetting the capital gains with the carryover losses?
SO you use the money of the sell for living expenses and you are in a low marginal tax bracket and all your regular income is because of the conversion of trad IRA -> Roth IRA.
What is the downside to tax-loss harvesting nowadays anyways? OK, I'll concede that if you buy replacement shares at these prices, then you may never have to tax-loss harvest again. The replacement shares I bought in 2009 (11 years ago) still have unrealized gains today. I have no reason to realize the gains at this time. Folks always say, "But those gains are now more than if you had not TLH'd and will cost you more in taxes" to which I respond, "Maybe, but I can give those shares away or die and not have to pay taxes on them!" And I still have carryover losses to use up from 2009. I'll also concede that $3,000 isn't what it used to be.
WEll, even if you plan to expend it sometime before yo die
In another post, you showed me how it's better to pay taxes later than sooner. It's as if the government was giving you a free loan that you can use to invest

Topic Author
international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Thu Mar 26, 2020 10:30 am

ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income? This also increases your basis going forward so you'll have a lower tax impact upon the subsequent sale. There is no wash sale rules on gain.

Example: You own VTI at $100 and it falls to $75 and you sell to harvest the tax loss and buy ITOT. If ITOT rises, you sell and offset the gain with the harvested loss. You can then rebuy ITOT or go back into VTI and pay no ordinary taxes on the short term gain while also increasing your basis going forward. You can keep doing this as the market recovers.
I thought tax gain harvest was basically useful when you had very low regular income (LTCG are taxed at 0%): https://www.bogleheads.org/wiki/Tax_gain_harvesting

Let's assume the cost basis for VTI was $90 to start with. After going down to $75 (you do VTI->ITOT), it goes back to $90. This is when you sell ITOT and buy VTI, again at $90.

You end up with the same cost basis. How is this better?
Usually, you want to keep shares with a lower cost basis than you had before

kaneohe
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Re: Planning for capital loss carryover with this market

Post by kaneohe » Thu Mar 26, 2020 10:31 am

international001 wrote:
Thu Mar 26, 2020 9:58 am
kaneohe wrote:
Wed Mar 25, 2020 11:28 pm
FiveK wrote:
Wed Mar 25, 2020 11:08 pm
kaneohe wrote:
Wed Mar 25, 2020 11:02 pm
FiveK wrote:
Wed Mar 25, 2020 11:39 am
Neither.

$3000 * 23.4% = $702.

But that's due to the specific inputs given.
?? the mortgage calculator got $720= 24% of the 3K
Was that using 2019 or 2020 tax brackets? Toolbox spreadsheet has 2020 brackets, and I'm guessing those are the ones of interest here.
You are correct...it's 2019 calculator and with the numbers given the ordinary income gets close to the 22/24% bracket delineation separator.
I'm confused. I gave an hypothetical example using 24% tax bracket. Where is that 23.4% coming from?
as FiveK mentioned he is using 2020 numbers so the tax brackets are somewhat different. You thought your income affected was in the 24% bracket.........in fact it is low enough that it straddles the 22/24% brackets with 2075 in the 24% bracket and 925 in the 22% bracket. This makes for a 498 + 204 = 702 tax savings . The 23.4% is merely the effective tax savings composed of 24% and 22% components.

ChiKid24
Posts: 54
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Re: Planning for capital loss carryover with this market

Post by ChiKid24 » Thu Mar 26, 2020 1:27 pm

FiveK wrote:
Wed Mar 25, 2020 11:51 pm
ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income?
That's feasible. One might instead prefer to offset ordinary income and thus save, e.g., 22% instead of saving the capital gains rate of 15%.
Short-term capital gains are taxed at ordinary income. As the market recovers you can sell gains anytime in the next year and avoid the ordinary income tax on it while increasing your basis.

ChiKid24
Posts: 54
Joined: Fri Aug 09, 2019 3:43 pm

Re: Planning for capital loss carryover with this market

Post by ChiKid24 » Thu Mar 26, 2020 1:30 pm

international001 wrote:
Thu Mar 26, 2020 10:30 am
ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income? This also increases your basis going forward so you'll have a lower tax impact upon the subsequent sale. There is no wash sale rules on gain.

Example: You own VTI at $100 and it falls to $75 and you sell to harvest the tax loss and buy ITOT. If ITOT rises, you sell and offset the gain with the harvested loss. You can then rebuy ITOT or go back into VTI and pay no ordinary taxes on the short term gain while also increasing your basis going forward. You can keep doing this as the market recovers.
I thought tax gain harvest was basically useful when you had very low regular income (LTCG are taxed at 0%): https://www.bogleheads.org/wiki/Tax_gain_harvesting

Let's assume the cost basis for VTI was $90 to start with. After going down to $75 (you do VTI->ITOT), it goes back to $90. This is when you sell ITOT and buy VTI, again at $90.

You end up with the same cost basis. How is this better?
Usually, you want to keep shares with a lower cost basis than you had before
Short-term capital gains are taxed at ordinary income not the LTCG rate. As the market recovers you can sell gains anytime in the next year and avoid the ordinary income tax on it while increasing your basis. For tax purposes, you want your shares to have a higher cost basis. Assuming you will eventually be selling again the increased basis lowers the gain down the road on the second sale.

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FiveK
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Re: Planning for capital loss carryover with this market

Post by FiveK » Thu Mar 26, 2020 2:52 pm

ChiKid24 wrote:
Thu Mar 26, 2020 1:27 pm
FiveK wrote:
Wed Mar 25, 2020 11:51 pm
ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income?
That's feasible. One might instead prefer to offset ordinary income and thus save, e.g., 22% instead of saving the capital gains rate of 15%.
Short-term capital gains are taxed at ordinary income. As the market recovers you can sell gains anytime in the next year and avoid the ordinary income tax on it while increasing your basis.
Yes, although if one waits then those short term gains become long term gains.

ChiKid24
Posts: 54
Joined: Fri Aug 09, 2019 3:43 pm

Re: Planning for capital loss carryover with this market

Post by ChiKid24 » Thu Mar 26, 2020 3:43 pm

FiveK wrote:
Thu Mar 26, 2020 2:52 pm
ChiKid24 wrote:
Thu Mar 26, 2020 1:27 pm
FiveK wrote:
Wed Mar 25, 2020 11:51 pm
ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income?
That's feasible. One might instead prefer to offset ordinary income and thus save, e.g., 22% instead of saving the capital gains rate of 15%.
Short-term capital gains are taxed at ordinary income. As the market recovers you can sell gains anytime in the next year and avoid the ordinary income tax on it while increasing your basis.
Yes, although if one waits then those short term gains become long term gains.
Of course. My strategy was solely meant to say he can use some of those tax losses against gains this year and increase his basis. I plan to move back into my original securities for as much as I can this year (assuming the market rises) to offset the harvested loss and raise my basis with no tax impact this year. I'd rather pay LT Cap Gain on an asset with a higher basis down the road since the gain will now be lower.

Topic Author
international001
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Re: Planning for capital loss carryover with this market

Post by international001 » Sat Mar 28, 2020 1:40 pm

kaneohe wrote:
Thu Mar 26, 2020 10:31 am
international001 wrote:
Thu Mar 26, 2020 9:58 am
kaneohe wrote:
Wed Mar 25, 2020 11:28 pm
FiveK wrote:
Wed Mar 25, 2020 11:08 pm
kaneohe wrote:
Wed Mar 25, 2020 11:02 pm


?? the mortgage calculator got $720= 24% of the 3K
Was that using 2019 or 2020 tax brackets? Toolbox spreadsheet has 2020 brackets, and I'm guessing those are the ones of interest here.
You are correct...it's 2019 calculator and with the numbers given the ordinary income gets close to the 22/24% bracket delineation separator.
I'm confused. I gave an hypothetical example using 24% tax bracket. Where is that 23.4% coming from?
as FiveK mentioned he is using 2020 numbers so the tax brackets are somewhat different. You thought your income affected was in the 24% bracket.........in fact it is low enough that it straddles the 22/24% brackets with 2075 in the 24% bracket and 925 in the 22% bracket. This makes for a 498 + 204 = 702 tax savings . The 23.4% is merely the effective tax savings composed of 24% and 22% components.
ok.. I just didn't want for this kind of precision. 24% was just an example of my tax bracket. Didn't even mention my filing status
tx for the answer

Topic Author
international001
Posts: 1300
Joined: Thu Feb 15, 2018 7:31 pm

Re: Planning for capital loss carryover with this market

Post by international001 » Sat Mar 28, 2020 1:53 pm

ChiKid24 wrote:
Thu Mar 26, 2020 1:30 pm
international001 wrote:
Thu Mar 26, 2020 10:30 am
ChiKid24 wrote:
Wed Mar 25, 2020 11:40 pm
Why not just tax gain harvest when the market recovers and use the losses to offset short term cap gains which would have been taxed as ordinary income? This also increases your basis going forward so you'll have a lower tax impact upon the subsequent sale. There is no wash sale rules on gain.

Example: You own VTI at $100 and it falls to $75 and you sell to harvest the tax loss and buy ITOT. If ITOT rises, you sell and offset the gain with the harvested loss. You can then rebuy ITOT or go back into VTI and pay no ordinary taxes on the short term gain while also increasing your basis going forward. You can keep doing this as the market recovers.
I thought tax gain harvest was basically useful when you had very low regular income (LTCG are taxed at 0%): https://www.bogleheads.org/wiki/Tax_gain_harvesting

Let's assume the cost basis for VTI was $90 to start with. After going down to $75 (you do VTI->ITOT), it goes back to $90. This is when you sell ITOT and buy VTI, again at $90.

You end up with the same cost basis. How is this better?
Usually, you want to keep shares with a lower cost basis than you had before
Short-term capital gains are taxed at ordinary income not the LTCG rate. As the market recovers you can sell gains anytime in the next year and avoid the ordinary income tax on it while increasing your basis. For tax purposes, you want your shares to have a higher cost basis. Assuming you will eventually be selling again the increased basis lowers the gain down the road on the second sale.
Ok.. that's not the usual notion of gain tax harvest. But I guess is a reasonable strategy. You have to use your losses someday, so you may as well use them next year if you have short term gains

Given the tax rate on capital gains is the same, it doesn't make a difference to use them carryover sooner or later, it just translates in a reduced cost basis. So you may as well wait more than one year to buy replacement shares

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