Tax Loss Harvesting Concern

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Topic Author
QuirkyEar
Posts: 27
Joined: Fri Jan 15, 2021 3:43 pm

Tax Loss Harvesting Concern

Post by QuirkyEar »

The 'holding period' of mutual funds regarding qualified dividends is a bit confusing to me.

Here is the policy shown on Fidelity's site (and other investing sites):
The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
So, on 6/28/22 I harvested VTIAX by exchanging it with VFWAX. And now, I would like to harvest another loss with VFWAX by going back to VTIAX. VFWAX has recently paid out a dividend, so I'm unsure if that dividend would be qualified or not if I exchanged VFWAX. I plan on reinvesting my dividends into VTIAX if that affects anything.
livesoft
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Re: Tax Loss Harvesting Concern

Post by livesoft »

How much money are we talking about? I showed in a thread that changing a quarterly dividend from partially qualified to non-qualified changed my taxes by $0.00. If that is not clear: It didn't change my taxes at all!

viewtopic.php?p=2813166#p2813166

Count 61 days from the day you bought VFWAX. What date would that be?

VFWAX does not pay out a 100% qualified dividend anyways, so you have to take that into account, too, but the 1099-DIV should do that for you.
Last edited by livesoft on Wed Sep 21, 2022 3:41 pm, edited 1 time in total.
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ShadowCat
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Re: Tax Loss Harvesting Concern

Post by ShadowCat »

So to be crystal clear: you purchased VFWAX on 06/28/2022, correct? If so, you have already met the 61 day holding requirement and may sell VFWAX at any time with any dividend paid to you since 06/28/2022 being qualified (to the extent that the dividend meets qualified dividend income rules).

Having the dividend invested into VTIAX is irrelevant. From the IRS's standpoint, you were paid a dividend in cash and you chose to buy VTIAX as a separate transaction. That your brokerage firm let you automate the process does not matter to the IRS.
Topic Author
QuirkyEar
Posts: 27
Joined: Fri Jan 15, 2021 3:43 pm

Re: Tax Loss Harvesting Concern

Post by QuirkyEar »

livesoft wrote: Wed Sep 21, 2022 3:39 pm How much money are we talking about? I showed in a thread that changing a quarterly dividend from partially qualified to non-qualified changed my taxes by $0.00. If that is not clear: It didn't change my taxes at all!

viewtopic.php?p=2813166#p2813166

Count 61 days from the day you bought VFWAX. What date would that be?

VFWAX does not pay out a 100% qualified dividend anyways, so you have to take that into account, too, but the 1099-DIV should do that for you.
It's a couple hundred bucks, but I'm close to the next tax bracket which is why I wanted to make sure. I believe August 28th would've marked the 61-day holding period. And thanks for the 1099 info didn't know about that.
ShadowCat wrote: Wed Sep 21, 2022 3:41 pm So to be crystal clear: you purchased VFWAX on 06/28/2022, correct? If so, you have already met the 61 day holding requirement and may sell VFWAX at any time with any dividend paid to you since 06/28/2022 being qualified (to the extent that the dividend meets qualified dividend income rules).

Having the dividend invested into VTIAX is irrelevant. From the IRS's standpoint, you were paid a dividend in cash and you chose to buy VTIAX as a separate transaction. That your brokerage firm let you automate the process does not matter to the IRS.
Yeah I bought it on 06/28/2022 when I initially exchanged VTIAX for VFWAX for TLH. Now I plan on re-exchanging VFWAX for VTIAX (due to recent losses). But it seems like everything checks out in terms of holding periods.
epictetus
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Re: Tax Loss Harvesting Concern

Post by epictetus »

this issue was really a puzzle to me several months ago when i was working to figure it out.

after thinking about it a good while, getting a calendar and counting days of various hypothetical purchases/sales, etc, i think i figured out that as long as you own the holding for 61 days, no matter when you bought it, you meet the rule. or at least meet the rule for a holding that pays a dividend quarterly.

if i am wrong on that i hope someone will correct/educate me.
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grabiner
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Re: Tax Loss Harvesting Concern

Post by grabiner »

QuirkyEar wrote: Wed Sep 21, 2022 4:26 pm
livesoft wrote: Wed Sep 21, 2022 3:39 pm How much money are we talking about? I showed in a thread that changing a quarterly dividend from partially qualified to non-qualified changed my taxes by $0.00. If that is not clear: It didn't change my taxes at all!

viewtopic.php?p=2813166#p2813166

Count 61 days from the day you bought VFWAX. What date would that be?

VFWAX does not pay out a 100% qualified dividend anyways, so you have to take that into account, too, but the 1099-DIV should do that for you.
It's a couple hundred bucks, but I'm close to the next tax bracket which is why I wanted to make sure. I believe August 28th would've marked the 61-day holding period. And thanks for the 1099 info didn't know about that.
Moving into the next bracket won't cost you significantly. If you are $100 below the top of the 24% bracket, and you turn $200 from qualified to non-qualified dividends, you pay 32% tax only on that $100 above the bracket boundary. So the tax cost would be $100 moved from 15% to 24%, and $100 moved from 15% to 32%, a total of $26.
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grabiner
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Re: Tax Loss Harvesting Concern

Post by grabiner »

epictetus wrote: Wed Sep 21, 2022 6:28 pm this issue was really a puzzle to me several months ago when i was working to figure it out.

after thinking about it a good while, getting a calendar and counting days of various hypothetical purchases/sales, etc, i think i figured out that as long as you own the holding for 61 days, no matter when you bought it, you meet the rule. or at least meet the rule for a holding that pays a dividend quarterly.

if i am wrong on that i hope someone will correct/educate me.
This is correct. The reason the rule is written this way is that they are some situations in which days do not count. If you buy an option which substantially reduces the risk of loss, you cannot count the days you hold that option towards the day count for qualified dividends. For example, if you buy a stock on July 1, buy an in-the-money put option on July 15, sell the put option on September 15, and sell the stock on October 1, a dividend paid on September 29 is not qualified because you can only count 31 days towards the holding period.
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ShadowCat
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Re: Tax Loss Harvesting Concern

Post by ShadowCat »

epictetus wrote: Wed Sep 21, 2022 6:28 pm this issue was really a puzzle to me several months ago when i was working to figure it out.

after thinking about it a good while, getting a calendar and counting days of various hypothetical purchases/sales, etc, i think i figured out that as long as you own the holding for 61 days, no matter when you bought it, you meet the rule. or at least meet the rule for a holding that pays a dividend quarterly.

if i am wrong on that i hope someone will correct/educate me.
Yes, this is correct: if you hold for 61 days then you're good to go for any dividend received within those 61 days.
epictetus
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Re: Tax Loss Harvesting Concern

Post by epictetus »

Thank you to grabiner and Shadowcat for confirming how the 61 day dividend issue works
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