tax loss harvesting with dividend reinvestment

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tadamsmar
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tax loss harvesting with dividend reinvestment

Post by tadamsmar »

I am a TLH newbie.

I sold a mutual fund on Aug 18 and invested in VBILX (intermediate bond fund). It has accrued and impressive loss since that date and I was thinking to harvesting some more losses in a few days.

But I forgot to turn off reinvestment on VBILX, so I got a dividend at the end of August that was reinvested.

So, how to I sort that out. How to I determine what part of my loss is a wash sale?

Thanks for any help.
rkhusky
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Re: tax loss harvesting with dividend reinvestment

Post by rkhusky »

tadamsmar wrote: Thu Sep 15, 2022 1:18 pm I am a TLH newbie.

I sold a mutual fund on Aug 18 and invested in VBILX (intermediate bond fund). It has accrued and impressive loss since that date and I was thinking to harvesting some more losses in a few days.

But I forgot to turn off reinvestment on VBILX, so I got a dividend at the end of August that was reinvested.

So, how to I sort that out. How to I determine what part of my loss is a wash sale?

Thanks for any help.
If this is your only holding of VBILX (i.e. not in any other accounts), just sell the shares purchased with the dividend at the same time you sell the shares with a loss. Or sell the dividend shares the day before you do the TLH to avoid any potential wash sale, even irrelevant ones.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

rkhusky wrote: Thu Sep 15, 2022 1:30 pm
tadamsmar wrote: Thu Sep 15, 2022 1:18 pm I am a TLH newbie.

I sold a mutual fund on Aug 18 and invested in VBILX (intermediate bond fund). It has accrued and impressive loss since that date and I was thinking to harvesting some more losses in a few days.

But I forgot to turn off reinvestment on VBILX, so I got a dividend at the end of August that was reinvested.

So, how to I sort that out. How to I determine what part of my loss is a wash sale?

Thanks for any help.
If this is your only holding of VBILX (i.e. not in any other accounts), just sell the shares purchased with the dividend at the same time you sell the shares with a loss. Or sell the dividend shares the day before you do the TLH to avoid any potential wash sale, even irrelevant ones.
I guess I don't understand how that works.

When I sell the realized loss will be a mixture of the harvestable losses and the unharvestable losses. I don't think Vanguard is going to calculate which is which. So don't I have to calculate the unharvestable loss?

Say my dividend was 1 share. If I sell 1 share will Vanguard based the realized loss on reinvestment date? How does that work?

BTW, I realize that I have this problem for another sale where sold all the shares at once and part of that loss is a wash sale. So I need the solution for that one too.
rkhusky
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Re: tax loss harvesting with dividend reinvestment

Post by rkhusky »

tadamsmar wrote: Thu Sep 15, 2022 1:42 pm
rkhusky wrote: Thu Sep 15, 2022 1:30 pm
tadamsmar wrote: Thu Sep 15, 2022 1:18 pm I am a TLH newbie.

I sold a mutual fund on Aug 18 and invested in VBILX (intermediate bond fund). It has accrued and impressive loss since that date and I was thinking to harvesting some more losses in a few days.

But I forgot to turn off reinvestment on VBILX, so I got a dividend at the end of August that was reinvested.

So, how to I sort that out. How to I determine what part of my loss is a wash sale?

Thanks for any help.
If this is your only holding of VBILX (i.e. not in any other accounts), just sell the shares purchased with the dividend at the same time you sell the shares with a loss. Or sell the dividend shares the day before you do the TLH to avoid any potential wash sale, even irrelevant ones.
I guess I don't understand how that works.

When I sell the realized loss will be a mixture of the harvestable losses and the unharvestable losses. I don't think Vanguard is going to calculate which is which. So don't I have to calculate the unharvestable loss?

Say my dividend was 1 share. If I sell 1 share will Vanguard based the realized loss on reinvestment date? How does that work?

BTW, I realize that I have this problem for another sale where sold all the shares at once and part of that loss is a wash sale. So I need the solution for that one too.
Suppose your dividend bought 1 share and you sell 1000 shares for a loss. If you just sell the 1000 shares, 1 share will be washed, but you can claim the loss on 999 shares. The dividend share's basis (cost) will be adjusted up by the amount of the loss on 1 share (the oldest share sold for a loss). When you sell that 1 share, you recoup your loss because the basis had went up by the amount of the disallowed loss.

If you sell the dividend share 1 day before you sell the 1000 shares, there is no replacement share left when you sell the 1000 shares, so you can claim the loss on all 1000 shares. Vanguard will not throw a wash sale flag.

If you sell the dividend share with the other 1000 shares, selling 1001 shares, Vanguard might not throw the wash sale flag and you claim the loss on your 1000 shares, plus you have the gain or loss from the dividend share. If they do throw the wash sale flag, they will automatically adjust the basis of the 1 replacement share, and then immediately sell it. You can still claim the loss on all 1000 shares, plus you have the gain or loss from the dividend share.
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Re: tax loss harvesting with dividend reinvestment

Post by tashnewbie »

What cost basis method do you have selected? SpecID, average cost, FIFO?

You should use SpecID. That allows you to see the losses by individual lot. It should show the lot that was purchased with the dividend.

As the user above said, as long as you sell the lot that was purchased with the dividend, you should be okay and not have a relevant wash sale.

ETA: Related to what retired@50 says below, if you're selling the entire holding of a fund, then it doesn't matter which cost basis method you use.
Last edited by tashnewbie on Thu Sep 15, 2022 2:03 pm, edited 1 time in total.
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Re: tax loss harvesting with dividend reinvestment

Post by retired@50 »

My experience with this situation is that if you sell the ENTIRE position (all shares) then Vanguard won't throw the "wash sale" flag on the 1099, assuming you transfer the money to an appropriate new investment.

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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

tashnewbie wrote: Thu Sep 15, 2022 2:00 pm What cost basis method do you have selected? SpecID, average cost, FIFO?

You should use SpecID. That allows you to see the losses by individual lot. It should show the lot that was purchased with the dividend.

As the user above said, as long as you sell the lot that was purchased with the dividend, you should be okay and not have a relevant wash sale.

ETA: Related to what retired@50 says below, if you're selling the entire holding of a fund, then it doesn't matter which cost basis method you use.
If I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
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Re: tax loss harvesting with dividend reinvestment

Post by livesoft »

tadamsmar wrote: Sat Sep 17, 2022 6:50 amIf I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
1. Wash sales are not illegal.
2. Wash sales generally defer a disallowed loss temporarily and not permanently.
3. If one puts 1 and 2 together, then one can understand that "it does not matter."
4. Do it and see what happens. For instance, see if Vanguard says you have a wash sale. If you do not believe me, then sell only the shares purchased in the previous 30 days and see how Vanguard annotates your account.
5. BTW, in order to sell specific shares (such as the shares purchased in the previous 30 days) one must have the Cost Basis Method set to Specific Identification and not Average Cost, nor FIFO, nor Average Basis.

Oh, one more thing: Wash sales are fun and educational! They are not challenging at all.
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Re: tax loss harvesting with dividend reinvestment

Post by DIYtrixie »

Maybe I’m missing something: did you re-purchase the original (unnamed) MF? Because a wash sale is triggered only when re-purchasing in a short time (<30 days) a security you previously owned. What you describe below sounds like a simple sale followed by purchase of something else (that later had a second small purchase, from the reinvested dividend).
tadamsmar wrote: Thu Sep 15, 2022 1:18 pm I am a TLH newbie.

I sold a mutual fund on Aug 18 and invested in VBILX (intermediate bond fund). It has accrued and impressive loss since that date and I was thinking to harvesting some more losses in a few days.

But I forgot to turn off reinvestment on VBILX, so I got a dividend at the end of August that was reinvested.

So, how to I sort that out. How to I determine what part of my loss is a wash sale?

Thanks for any help.
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Re: tax loss harvesting with dividend reinvestment

Post by retired@50 »

tadamsmar wrote: Sat Sep 17, 2022 6:50 am
tashnewbie wrote: Thu Sep 15, 2022 2:00 pm What cost basis method do you have selected? SpecID, average cost, FIFO?

You should use SpecID. That allows you to see the losses by individual lot. It should show the lot that was purchased with the dividend.

As the user above said, as long as you sell the lot that was purchased with the dividend, you should be okay and not have a relevant wash sale.

ETA: Related to what retired@50 says below, if you're selling the entire holding of a fund, then it doesn't matter which cost basis method you use.
If I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
If you sell the entire position, then you cannot be accused of buying replacement shares, which is discussed here:
https://fairmark.com/investment-taxatio ... ent-stock/

Regards,
This is one person's opinion. Nothing more.
rkhusky
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Re: tax loss harvesting with dividend reinvestment

Post by rkhusky »

tadamsmar wrote: Sat Sep 17, 2022 6:50 am If I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
Even if Vanguard flagged it as a wash sale (which some posters have said they don't bother to do), when they sell the replacement shares a microsecond later, you recoup your very temporarily disallowed loss because the cost basis for the replacement shares was adjusted upward.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

livesoft wrote: Sat Sep 17, 2022 6:54 am
tadamsmar wrote: Sat Sep 17, 2022 6:50 amIf I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
1. Wash sales are not illegal.
2. Wash sales generally defer a disallowed loss temporarily and not permanently.
3. If one puts 1 and 2 together, then one can understand that "it does not matter."
4. Do it and see what happens. For instance, see if Vanguard says you have a wash sale. If you do not believe me, then sell only the shares purchased in the previous 30 days and see how Vanguard annotates your account.
5. BTW, in order to sell specific shares (such as the shares purchased in the previous 30 days) one must have the Cost Basis Method set to Specific Identification and not Average Cost, nor FIFO, nor Average Basis.

Oh, one more thing: Wash sales are fun and educational! They are not challenging at all.
I know that wash sales are not illegal.

I am trying to figure out how to exclude losses from wash sales when I harvest short term losses. I am assuming that it is illegal or a regulation violation for me the underreport my AGI on my IRS 1040.

I don't have to do it, because just noticed that I did a similar thing on on Aug 18 (I did not mention this in the OP). I sold VWIUX on Aug 18 so I would have a short-term capital loss with the intention of tax loss harvesting. I had the cost basis set to Average Cost because I was selling the whole account and did not think it mattered But I had the account set for dividend reinvestment, so I had a dividend purchase on July 31 and that dividend is a wash sale if I understand correctly. Vanguard just shows the value of the total realized short-term loss. Vanguard did not separate out the wash sale. Should I use whatever information I have to estimate the loss on the wash sale so I will not illegally harvest it? How does this work?

I noticed I can solve the problem mentioned in the OP by just turning off dividend reinvestment and waiting to early October to sell out the whole account. Perhaps not ideal, but it will work I think. But the VWIUX sale is a done deal so I have to solve that one.
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Re: tax loss harvesting with dividend reinvestment

Post by tashnewbie »

tadamsmar wrote: Sat Sep 17, 2022 10:09 am
livesoft wrote: Sat Sep 17, 2022 6:54 am
tadamsmar wrote: Sat Sep 17, 2022 6:50 amIf I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
1. Wash sales are not illegal.
2. Wash sales generally defer a disallowed loss temporarily and not permanently.
3. If one puts 1 and 2 together, then one can understand that "it does not matter."
4. Do it and see what happens. For instance, see if Vanguard says you have a wash sale. If you do not believe me, then sell only the shares purchased in the previous 30 days and see how Vanguard annotates your account.
5. BTW, in order to sell specific shares (such as the shares purchased in the previous 30 days) one must have the Cost Basis Method set to Specific Identification and not Average Cost, nor FIFO, nor Average Basis.

Oh, one more thing: Wash sales are fun and educational! They are not challenging at all.
I know that wash sales are not illegal.

I am trying to figure out how to exclude losses from wash sales when I harvest short term losses. I am assuming that it is illegal or a regulation violation for me the underreport my AGI on my IRS 1040.

I don't have to do it, because just noticed that I did a similar thing on on Aug 18 (I did not mention this in the OP). I sold VWIUX on Aug 18 so I would have a short-term capital loss with the intention of tax loss harvesting. I had the cost basis set to Average Cost because I was selling the whole account and did not think it mattered But I had the account set for dividend reinvestment, so I had a dividend purchase on July 31 and that dividend is a wash sale if I understand correctly. Vanguard just shows the value of the total realized short-term loss. Vanguard did not separate out the wash sale. Should I use whatever information I have to estimate the loss on the wash sale so I will not illegally harvest it? How does this work?

I noticed I can solve the problem mentioned in the OP by just turning off dividend reinvestment and waiting to early October to sell out the whole account. Perhaps not ideal, but it will work I think. But the VWIUX sale is a done deal so I have to solve that one.
I’m not following your sequence of events or your specific concern regarding the Aug. 18 VWIUX sale.

I think it’d be helpful if you provided more information in this sort of format:

- XYZ date: bought xxx shares of VWIUX
-July 31: xxx shares of dividend of VWIUX auto-reinvested into VWIUX
-Aug. 18: sold xxx shares of VWUIX for a loss
-any subsequent activity related to remaining VWUIX holdings or the fund you purchased with the money from the sale of VWUIX on Aug. 18 (VBILX?)

If you sold all your VWUIX on Aug. 18, you don’t have a wash sale that will affect your taxable income. There’s nothing you need to do to avoid a wash sale. Vanguard will give you all relevant information for your tax return next year (January I think) on a 1099. There’s nothing you need to track for the tax return.
Last edited by tashnewbie on Sat Sep 17, 2022 1:27 pm, edited 1 time in total.
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Re: tax loss harvesting with dividend reinvestment

Post by livesoft »

Re: the VWIUX August 18 sale(s): If you actually created a wash sale, then your Vanguard online account information would state that and your 1099-B for this year will have it all taken care of. In other words, there is really nothing to do as far as I can tell.

Vanguard and other brokers are pretty good at all this wash sale stuff IF there is only one single taxable account involved.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

tashnewbie wrote: Sat Sep 17, 2022 12:20 pm
tadamsmar wrote: Sat Sep 17, 2022 10:09 am
livesoft wrote: Sat Sep 17, 2022 6:54 am
tadamsmar wrote: Sat Sep 17, 2022 6:50 amIf I sell the entire holding and some of it was purchased in the last 30 days, how can it be that it does not matter?

From what I can see, Vanguard just tells you the total realized short term loss. Isn't some of that loss considered to be a wash sale, since some of those shares were purchased in the last 30 days?
1. Wash sales are not illegal.
2. Wash sales generally defer a disallowed loss temporarily and not permanently.
3. If one puts 1 and 2 together, then one can understand that "it does not matter."
4. Do it and see what happens. For instance, see if Vanguard says you have a wash sale. If you do not believe me, then sell only the shares purchased in the previous 30 days and see how Vanguard annotates your account.
5. BTW, in order to sell specific shares (such as the shares purchased in the previous 30 days) one must have the Cost Basis Method set to Specific Identification and not Average Cost, nor FIFO, nor Average Basis.

Oh, one more thing: Wash sales are fun and educational! They are not challenging at all.
I know that wash sales are not illegal.

I am trying to figure out how to exclude losses from wash sales when I harvest short term losses. I am assuming that it is illegal or a regulation violation for me the underreport my AGI on my IRS 1040.

I don't have to do it, because just noticed that I did a similar thing on on Aug 18 (I did not mention this in the OP). I sold VWIUX on Aug 18 so I would have a short-term capital loss with the intention of tax loss harvesting. I had the cost basis set to Average Cost because I was selling the whole account and did not think it mattered But I had the account set for dividend reinvestment, so I had a dividend purchase on July 31 and that dividend is a wash sale if I understand correctly. Vanguard just shows the value of the total realized short-term loss. Vanguard did not separate out the wash sale. Should I use whatever information I have to estimate the loss on the wash sale so I will not illegally harvest it? How does this work?

I noticed I can solve the problem mentioned in the OP by just turning off dividend reinvestment and waiting to early October to sell out the whole account. Perhaps not ideal, but it will work I think. But the VWIUX sale is a done deal so I have to solve that one.
I’m not following your sequence of events or your specific concern regarding the Aug. 18 VWIUX sale.

I think it’d be helpful if you provided more information in this sort of format:

- XYZ date: bought xxx shares of VWIUX
-July 31: xxx shares of dividend of VWIUX auto-reinvested into VWIUX
-Aug. 18: sold xxx shares of VWUIX for a loss
-any subsequent activity related to remaining VWUIX holdings or the fund you purchased with the money from the sale of VWUIX on Aug. 18 (VBILX?)

If you sold all your VWUIX on Aug. 18, you don’t have a wash sale that will affect your taxable income. There’s nothing you need to do to avoid a wash sale. Vanguard will give you all relevant information for your tax return next year (January I think) on a 1099. There’s nothing you need to track for the tax return.
This is all very confusing. I can provide that information but I have no idea why you would need it to answer my question. Seems to me that all you need to know is that I bought some shares on July 31 and sold them on August 18. How is that not a wash sale? Why would the details make any difference?

XYZ date somewhere around January 1, hence no long-term capital losses. I did buy VBILX with the money from the sale.
Last edited by tadamsmar on Sat Sep 17, 2022 1:41 pm, edited 1 time in total.
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Re: tax loss harvesting with dividend reinvestment

Post by livesoft »

tadamsmar wrote: Sat Sep 17, 2022 1:35 pm[...] Seems to me that all you need to know is that I bought some shares on July 31 and sold them on August 18. How is that not a wash sale? Why would the details make any difference?
Well, if you sold those shares at a gain, then it is not a wash sale.

If you sold them for a loss and did not buy and keep other shares within the wash sale period, then it is not a wash sale.

That is: It seems you do not completely understand what a wash sale might be.
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Re: tax loss harvesting with dividend reinvestment

Post by ruud »

tadamsmar wrote: Sat Sep 17, 2022 1:35 pm Seems to me that all you need to know is that I bought some shares on July 31 and sold them on August 18. How is that not a wash sale?
It would only be a wash sale if you:
* sold them for a loss, -and-
* purchased (other) substantially identical shares within a -/+ 30 day period
.
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Re: tax loss harvesting with dividend reinvestment

Post by nolesrule »

tadamsmar wrote: Sat Sep 17, 2022 1:35 pm Seems to me that all you need to know is that I bought some shares on July 31 and sold them on August 18. How is that not a wash sale?
A wash sale requires a different set of shares to have been purchased in the wash sale window. They cannot wash with themselves.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

livesoft wrote: Sat Sep 17, 2022 1:40 pm
tadamsmar wrote: Sat Sep 17, 2022 1:35 pm[...] Seems to me that all you need to know is that I bought some shares on July 31 and sold them on August 18. How is that not a wash sale? Why would the details make any difference?
Well, if you sold those shares at a gain, then it is not a wash sale.

If you sold them for a loss and did not buy and keep other shares within the wash sale period, then it is not a wash sale.

That is: It seems you do not completely understand what a wash sale might be.
I think I understand now.

Since I sold all my VWIUX on August 18th that means that those shares I bought at the end of July were not replacements for the ones I sold.
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Re: tax loss harvesting with dividend reinvestment

Post by livesoft »

:thumbsup :thumbsup
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

Thanks to everyone who patiently explained this to me over and over!
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

livesoft wrote: Sat Sep 17, 2022 2:32 pm :thumbsup :thumbsup
We were thinking about selling all the VEMAX in my wife's taxable account for a loss the we can harvest.

But I have VEMAX in my Roth account that just got a dividend reinvestment on 9/16.

If we sell the VEMAX in my wife's account with the 31-day window, will that trigger a wash sale?

It looks like it should trigger a wash sale from the rules I have read. I wonder if the 1099s will cover all this stuff.
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Re: tax loss harvesting with dividend reinvestment

Post by livesoft »

If you sell VEMAX shares at a loss in a taxable account then Yes, the 9/16 purchase in the Roth account will create a partial wash sale. The 1099s will not cover this, but one can readily figure out the amount of the disallowed loss which will be permanently disallowed. The reporting on a Form 1040 is not difficult. See, e.g., viewtopic.php?p=2773041#p2773041 and viewtopic.php?p=2785044#p2785044

However, I suspect that you will just wait. :)
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Re: tax loss harvesting with dividend reinvestment

Post by placeholder »

It's a theory on this forum that if you sold those roth shares that could cause a wash before the shares in taxable are sold then there would be no wash sale although in my opinion the reasoning has some questions about it.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

livesoft wrote: Sat Sep 17, 2022 3:19 pm If you sell VEMAX shares at a loss in a taxable account then Yes, the 9/16 purchase in the Roth account will create a partial wash sale. The 1099s will not cover this, but one can readily figure out the amount of the disallowed loss which will be permanently disallowed. The reporting on a Form 1040 is not difficult. See, e.g., viewtopic.php?p=2773041#p2773041 and viewtopic.php?p=2785044#p2785044

However, I suspect that you will just wait. :)
I suspect that too!

Thanks for all the help.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

livesoft wrote: Sat Sep 17, 2022 3:19 pm If you sell VEMAX shares at a loss in a taxable account then Yes, the 9/16 purchase in the Roth account will create a partial wash sale. The 1099s will not cover this, but one can readily figure out the amount of the disallowed loss which will be permanently disallowed. The reporting on a Form 1040 is not difficult. See, e.g., viewtopic.php?p=2773041#p2773041 and viewtopic.php?p=2785044#p2785044

However, I suspect that you will just wait. :)
I suspect that too!

Thanks for all the help.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

placeholder wrote: Sat Sep 17, 2022 6:14 pm It's a theory on this forum that if you sold those roth shares that could cause a wash before the shares in taxable are sold then there would be no wash sale although in my opinion the reasoning has some questions about it.
I read that there is an explicit ruling by the IRS that this is a wash sale.

But I don’t know if the IRS would detect it if you tried to harvest the loss.
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Re: tax loss harvesting with dividend reinvestment

Post by placeholder »

tadamsmar wrote: Sat Sep 17, 2022 9:17 pm
placeholder wrote: Sat Sep 17, 2022 6:14 pm It's a theory on this forum that if you sold those roth shares that could cause a wash before the shares in taxable are sold then there would be no wash sale although in my opinion the reasoning has some questions about it.
I read that there is an explicit ruling by the IRS that this is a wash sale.

But I don’t know if the IRS would detect it if you tried to harvest the loss.
I think you are confusing the ruling that iras participate in wash sales which is true but in a taxable account if you were to sell all the shares purchased before you did your tlh there would be no wash sale because there would be no replacement shares so some think the same should apply to iras.
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Re: tax loss harvesting with dividend reinvestment

Post by rkhusky »

tadamsmar wrote: Sat Sep 17, 2022 3:08 pm
livesoft wrote: Sat Sep 17, 2022 2:32 pm :thumbsup :thumbsup
We were thinking about selling all the VEMAX in my wife's taxable account for a loss the we can harvest.

But I have VEMAX in my Roth account that just got a dividend reinvestment on 9/16.

If we sell the VEMAX in my wife's account with the 31-day window, will that trigger a wash sale?

It looks like it should trigger a wash sale from the rules I have read. I wonder if the 1099s will cover all this stuff.
It will cause a permanently disallowed wash sale. However, the number of shares disallowed by the wash sale will equal the number of shares purchased with the dividend, and so you may not care about the wash sale (e.g. 1 share washed out of a 1000).

If you sell all the shares of VEMAX in your Roth before selling in your wife's account, you can avoid the wash sale (or just sell the dividend shares if you aren't required to use FIFO like in most tax-advantaged accounts).

The 1099 only covers wash sales for the same investment in the same account. Your example meets the first but not the second.
tashnewbie
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Re: tax loss harvesting with dividend reinvestment

Post by tashnewbie »

Sounds like you may benefit from turning off auto reinvestment of dividends. Send them to a settlement fund. Good luck!
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Re: tax loss harvesting with dividend reinvestment

Post by VanGar+Goyle »

tadamsmar wrote: Sat Sep 17, 2022 10:09 am
livesoft wrote: Sat Sep 17, 2022 6:54 am 2. Wash sales generally defer a disallowed loss temporarily and not permanently.
I noticed I can solve the problem mentioned in the OP by just turning off dividend reinvestment and waiting to early October to sell out the whole account. Perhaps not ideal, but it will work I think. But the VWIUX sale is a done deal so I have to solve that one.
Can someone explain why waiting to October is required?
It seems that you have a wash sale now, you could sell all of the VWIUX mutual fund any time this year.
If you sell too soon, you may have short term gains or losses, and lose some qualified dividends ( 60 day period ), but that may be a secondary concern.
Vanguard may not flag your activity as a wash sale until you receive a 1099-B in January with box Box 1g. Wash Sale Loss Disallowed.
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tadamsmar
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

VanGar+Goyle wrote: Mon Sep 19, 2022 3:51 am
tadamsmar wrote: Sat Sep 17, 2022 10:09 am
livesoft wrote: Sat Sep 17, 2022 6:54 am 2. Wash sales generally defer a disallowed loss temporarily and not permanently.
I noticed I can solve the problem mentioned in the OP by just turning off dividend reinvestment and waiting to early October to sell out the whole account. Perhaps not ideal, but it will work I think. But the VWIUX sale is a done deal so I have to solve that one.
Can someone explain why waiting to October is required?
It seems that you have a wash sale now, you could sell all of the VWIUX mutual fund any time this year.
If you sell too soon, you may have short term gains or losses, and lose some qualified dividends ( 60 day period ), but that may be a secondary concern.
Vanguard may not flag your activity as a wash sale until you receive a 1099-B in January with box Box 1g. Wash Sale Loss Disallowed.
I was confused when I made that post. Later in the thread I got educated.
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Re: tax loss harvesting with dividend reinvestment

Post by placeholder »

Wash sales occur in a span 30 days before day of and 30 days after so you either have to avoid buying the substantially identical security during that period or dispose of any such purchases before the sale although it's speculative as to whether such shares in iras could be cleared in that manner.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

placeholder wrote: Mon Sep 19, 2022 3:49 pm Wash sales occur in a span 30 days before day of and 30 days after so you either have to avoid buying the substantially identical security during that period or dispose of any such purchases before the sale although it's speculative as to whether such shares in iras could be cleared in that manner.
Not sure what you mean by "cleared".
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

rkhusky wrote: Sun Sep 18, 2022 7:28 am
tadamsmar wrote: Sat Sep 17, 2022 3:08 pm
livesoft wrote: Sat Sep 17, 2022 2:32 pm :thumbsup :thumbsup
We were thinking about selling all the VEMAX in my wife's taxable account for a loss the we can harvest.

But I have VEMAX in my Roth account that just got a dividend reinvestment on 9/16.

If we sell the VEMAX in my wife's account with the 31-day window, will that trigger a wash sale?

It looks like it should trigger a wash sale from the rules I have read. I wonder if the 1099s will cover all this stuff.
It will cause a permanently disallowed wash sale. However, the number of shares disallowed by the wash sale will equal the number of shares purchased with the dividend, and so you may not care about the wash sale (e.g. 1 share washed out of a 1000).

If you sell all the shares of VEMAX in your Roth before selling in your wife's account, you can avoid the wash sale (or just sell the dividend shares if you aren't required to use FIFO like in most tax-advantaged accounts).

The 1099 only covers wash sales for the same investment in the same account. Your example meets the first but not the second.
Vanguard only allows average cost capital basis for Roth accounts. So I can't sell the specific shares. The reinvestment bought 34 and a fraction shares. Could I just sell 35 shares in the taxable account and consider that to be a wash sale. Then I could sell out all the rest of the VEMAX and use that for TLH. Would that work? I would sort of be doing my own accounting via multiple transactions.
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Re: tax loss harvesting with dividend reinvestment

Post by rkhusky »

tadamsmar wrote: Tue Sep 20, 2022 7:12 am Vanguard only allows average cost capital basis for Roth accounts. So I can't sell the specific shares. The reinvestment bought 34 and a fraction shares. Could I just sell 35 shares in the taxable account and consider that to be a wash sale. Then I could sell out all the rest of the VEMAX and use that for TLH. Would that work? I would sort of be doing my own accounting via multiple transactions.
Doing two transactions is probably best, because you could choose the 35 shares with the smallest losses to wash. And then claim the loss on the shares with the largest losses. If you did it in one transaction, you would have to wash the oldest shares (which may have the smallest losses anyways, but you are not guaranteed of that).

An alternative is to temporarily sell all your shares of VEMAX in your Roth, do the TLH, and then 31 days later, buy back the VEMAX. But there is some risk in doing that if the replacement for VEMAX doesn't match it very well. You could win or lose by doing so, but it is a risk.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

retired@50 wrote: Thu Sep 15, 2022 2:01 pm My experience with this situation is that if you sell the ENTIRE position (all shares) then Vanguard won't throw the "wash sale" flag on the 1099, assuming you transfer the money to an appropriate new investment.

Regards,
I see something that contradicts this.

I sold all my VWIUX for a short-term loss. When I go to the Vanguard page where I can see my realized losses, there is a little i button beside the loss value. It says that $58.15 was disallowed due to a wash sale. That might be the loss on the reinvested dividend that occurred within the 30-day window.
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Re: tax loss harvesting with dividend reinvestment

Post by nolesrule »

tadamsmar wrote: Thu Sep 22, 2022 3:35 am
retired@50 wrote: Thu Sep 15, 2022 2:01 pm My experience with this situation is that if you sell the ENTIRE position (all shares) then Vanguard won't throw the "wash sale" flag on the 1099, assuming you transfer the money to an appropriate new investment.

Regards,
I see something that contradicts this.

I sold all my VWIUX for a short-term loss. When I go to the Vanguard page where I can see my realized losses, there is a little i button beside the loss value. It says that $58.15 was disallowed due to a wash sale. That might be the loss on the reinvested dividend that occurred within the 30-day window.
It could be, but if you also sold the dividend-reinvested shares then you've already recovered the deferred loss.
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Re: tax loss harvesting with dividend reinvestment

Post by tadamsmar »

rkhusky wrote: Tue Sep 20, 2022 8:04 am
tadamsmar wrote: Tue Sep 20, 2022 7:12 am Vanguard only allows average cost capital basis for Roth accounts. So I can't sell the specific shares. The reinvestment bought 34 and a fraction shares. Could I just sell 35 shares in the taxable account and consider that to be a wash sale. Then I could sell out all the rest of the VEMAX and use that for TLH. Would that work? I would sort of be doing my own accounting via multiple transactions.
Doing two transactions is probably best, because you could choose the 35 shares with the smallest losses to wash. And then claim the loss on the shares with the largest losses. If you did it in one transaction, you would have to wash the oldest shares (which may have the smallest losses anyways, but you are not guaranteed of that).

An alternative is to temporarily sell all your shares of VEMAX in your Roth, do the TLH, and then 31 days later, buy back the VEMAX. But there is some risk in doing that if the replacement for VEMAX doesn't match it very well. You could win or lose by doing so, but it is a risk.
I just went ahead and did the two transactions. I did not try to ID specific shares since I was only selling about $1000 for the wash sale and loss difference can't be that much. Hopefully it won't be hard to enter all this in the HRBlock software when I do my taxes.

I just churned this entire account for TLH of all the short-term losses can harvest for now. But there may be more next month! (Should I be :D or :( ?)

I plan to buy an SCHE ETF tomorrow when the funds are in my settlement.

The only thing I regret so far is that I sold Vg Total International and bought Fidelity Total International in a 401K. I just sold the Fidelity to swap it back after the 30 day window. I had lost about $3000 or about 1 year's harvest, but I can't harvest it, I should have bought an ETF.

Anyway I have about $45,000 in harvestable losses, about 15 years worth. Pretty good chance we will live another 15 years.

PS: Come to think of it I could have sold the Emerging Market and the Total International just bought the Vg World mutual fund. Then there would have been no need to jump to an ETF.
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Re: tax loss harvesting with dividend reinvestment

Post by retired@50 »

tadamsmar wrote: Thu Sep 22, 2022 3:35 am
retired@50 wrote: Thu Sep 15, 2022 2:01 pm My experience with this situation is that if you sell the ENTIRE position (all shares) then Vanguard won't throw the "wash sale" flag on the 1099, assuming you transfer the money to an appropriate new investment.

Regards,
I see something that contradicts this.

I sold all my VWIUX for a short-term loss. When I go to the Vanguard page where I can see my realized losses, there is a little i button beside the loss value. It says that $58.15 was disallowed due to a wash sale. That might be the loss on the reinvested dividend that occurred within the 30-day window.
I don't doubt what you're saying, and it could be that their wash sale tracking ability is changing over time. I guess you'll have to see how things are reported on the 1099 in the spring of next year. My last TLH was in 2020 and I haven't done any since.

Regards,
This is one person's opinion. Nothing more.
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