Tax Loss Harvest and Securities Lending

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
outvest
Posts: 13
Joined: Tue Oct 02, 2018 11:52 am

Tax Loss Harvest and Securities Lending

Post by outvest »

Tax Loss Harvest and Securities Lending question.
I'll use a very basic proposed scenario just to illustrate the question I have.

Suppose you have 500 shares of VTI that you lend out via Securities Lending for 9 months

After 6 months you see the price of VTI tank so you buy 500 additional shares in a separate brokerage account
After 30 days to avoid wash sale rules (7 months in) you sell 500 shares of VTI...for the sake of this example let's assume you sell these 500 shares at the price you bought them at (the 6 month mark when the price tanked)
You then wait 30 days (again to clear any wash sale rules)

Using FIFO (or some type of HIFO or specific tax lot identification method) can you tax loss harvest the original 500 shares so that the cost basis of the shares are at the reduced price at the 6 month mark? Even though they are technically lent out?
lazynovice
Posts: 2836
Joined: Mon Apr 16, 2012 10:48 pm

Re: Tax Loss Harvest and Securities Lending

Post by lazynovice »

Wash sales apply to taxable losses. In your example:

500 shares lent out. You haven’t sold, so you have no tax loss.
Buy 500 shares 6 months later. Still no loss. (And no reason to wait 30 days to buy anything by the way).
Sell 500 shares 30 days later for price equal to cost. Still no loss. (And nothing about holding these shares for 30 days is related to tax losses or wash sales).
Sell the lent out shares at a loss after waiting 30 days. Again, no reason to wait 30 days. You only own these 500 shares. You don’t have any replacement lots for the loss to be applied to. You don’t need to use any particular lot identification method because you are selling all your VTI.

I don’t know if you can sell shares that are lent out. That is the bigger question.

I think you are misinterpreting the 30 day rule. You are doing a lot of 30 day waiting for some reason. For the purposes of 30 days, take the date of the loss. Count backwards 30 days (not counting the date of the loss). On the date of the loss, do you own any shares purchased in that time period? If so, you have a wash sale. Sell those shares if you want to recognize the full loss. Now, wait 30 days. Don’t buy into that fund again in that time period. That’s it. That is the rule. If you want to sell the new fund in 5 days, go for it. Just don’t buy into the old fund until 30 days is over.
Topic Author
outvest
Posts: 13
Joined: Tue Oct 02, 2018 11:52 am

Re: Tax Loss Harvest and Securities Lending

Post by outvest »

lazynovice wrote: Wed Jun 22, 2022 8:20 pm I don’t know if you can sell shares that are lent out. That is the bigger question.
Yes this is exactly what I'm trying to get answered :)
I want to see if I can buy new shares and then sell them (let's assume we cover any wash sale rule waiting period), but have the sale apply to the lent out shares.

There doesn't seem to be much info on this online
lazynovice
Posts: 2836
Joined: Mon Apr 16, 2012 10:48 pm

Re: Tax Loss Harvest and Securities Lending

Post by lazynovice »

outvest wrote: Thu Jun 23, 2022 7:54 am
lazynovice wrote: Wed Jun 22, 2022 8:20 pm I don’t know if you can sell shares that are lent out. That is the bigger question.
Yes this is exactly what I'm trying to get answered :)
I want to see if I can buy new shares and then sell them (let's assume we cover any wash sale rule waiting period), but have the sale apply to the lent out shares.

There doesn't seem to be much info on this online
You can either call your broker and ask or you can try it with one share and just accept a wash sale on one share. Buy one share and then try to sell one lent out share to see what happens.
Post Reply