Need guidance on selling

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Topic Author
BryghtBean
Posts: 2
Joined: Sat Aug 01, 2020 10:59 am

Need guidance on selling

Post by BryghtBean » Sat Aug 01, 2020 11:11 am

I want to sell $200k worth in my brokerage account to pay off my house. Let’s say I have two holdings, VTSAX and VTIAX. (This plus more VTSAX and VTIAX plus VTABX in my tax-deferred accounts make up my 3 fund portfolio.)

VTSAX is up 20% since I bought it, VTIAX is down 10%. Do I sell VTSAX because I’m ahead, VTIAX to get the losses for tax purposes, or a combination of both to balance out the gains from the losses? I’m new at this and still trying to figure things out.

Thanks.

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grabiner
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Re: Need guidance on selling

Post by grabiner » Sat Aug 01, 2020 12:34 pm

There are two independent decisions: which fund to sell in the taxable account, and what you want your asset allocation to be. You can sell either fund in your taxable account, and if that isn't the asset class you wanted to sell, buy it back in your tax-deferred account. (Don't buy the same fund in your IRA or 401(k) that you sold in taxable for a loss, or you will have a wash sale and be unable to deduct the loss; choose something else that is not substantially identical).

Thus you should prefer to sell the fund with a capital loss, or those shares with the largest losses or smallest gains if you sell only part of your holding.

This is exactly what I did when I paid off my own mortgage in March. I had capital losses in an international stock fund in my taxable account, so I sold it for the tax loss, and paid off the mortgage with the cash proceeds. But I wanted to sell bonds, not international stock, so I sold a bond fund in my employer plan to buy an equal amount of an international stock fund there.
Wiki David Grabiner

Topic Author
BryghtBean
Posts: 2
Joined: Sat Aug 01, 2020 10:59 am

Re: Need guidance on selling

Post by BryghtBean » Mon Aug 03, 2020 9:11 am

That’s exactly what I was planning re buying equivalent funds in tax-deferred account. I just wasn’t sure about which one to sell, but I think you’re right: will sell the loser and do an exchange in the IRA. Thank you for the clarity!

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