I don’t understand why tax loss harvesting is that beneficial

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

toddthebod wrote: Tue May 14, 2024 1:09 pm
TimeIsYourFriend wrote: Tue May 14, 2024 12:08 pm
toddthebod wrote: Tue May 14, 2024 11:57 am
TimeIsYourFriend wrote: Tue May 14, 2024 8:22 am
toddthebod wrote: Tue May 14, 2024 7:52 am Sorry, not going to voluntarily pay thousands of dollars in additional income taxes on the off chance that at some point in the future there may be some paradigm-shifting changes in the tax law.
Tax loss harvesting is not a tax credit. You are merely shifting that tax liability to the future. That doesn't mean that you are guaranteed to be better off. If you have capital gains that can be offset by TLH in the current year, it probably makes sense. But people take this overboard and end up with really low basis for $3k/year income offset.
You are not "merely shifting tax liability to the future." All the various reasons why have been discussed extensively above and on many other threads on the topic. I save $1,000/year in income taxes because of tax loss harvesting in 2022, and I will never pay those taxes back.
You will when you sell the same asset at a lower basis (and higher capital gains) than if you didn't do TLH. TLH is exactly that. Deferring taxes into the future. That could be beneficial or not depending on numerous factors. If you don't plan to ever sell that asset and only leave it for your kids who will enjoy a step-up in basis, that is one clear cut way you could definitely benefit. Other cases depend on the situation and some is unknown (like future tax law).
I have already given away substantial portions of the shares with the lower basis. Future tax law doesn't matter. I have not just deferred taxes. You are ignoring the many, many ways listed in this thread how tax loss harvesting can reduce your total tax burden or otherwise provide a benefit:

1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
"Time is your friend; impulse is your enemy." - John C. Bogle
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
User avatar
anon_investor
Posts: 15190
Joined: Mon Jun 03, 2019 1:43 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by anon_investor »

toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
CletusCaddy
Posts: 2963
Joined: Sun Sep 12, 2021 4:23 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by CletusCaddy »

anon_investor wrote: Tue May 14, 2024 3:41 pm
toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
If this is the case, it means you have significant non-taxable account income coming in. Which presumably means you have less need to tap the taxable account at all. Which presumably means you are more likely to pass on your taxable account to your heirs at full step up basis.

I’m with Toddthebod, I think there is asymmetric upside to TLH that is not fully appreciated by folks.
Last edited by CletusCaddy on Tue May 14, 2024 3:47 pm, edited 1 time in total.
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

anon_investor wrote: Tue May 14, 2024 3:41 pm
toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
Not enough. You are potentially saving at ordinary income rates for years before that happens, and if you are making enough such that your capital gains rates are higher than your old income tax rates, you also need to be in a situation where you have to sell those old shares, the likelihood of which goes down as your income goes up.
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

CletusCaddy wrote: Tue May 14, 2024 3:44 pm
anon_investor wrote: Tue May 14, 2024 3:41 pm
toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
If this is the case, it means you have significant non-taxable account income coming in. Which presumably means you have less need to tap the taxable account at all. Which presumably means you are more likely to pass on your taxable account to your heirs at full step up basis.

I’m with Toddthebod, I think there is asymmetric upside to TLH that is not fully appreciated by folks.
So basically you are saying that people tend to cap their spending when they get into a high tax bracket. They don’t live in HCOL areas, buy expensive houses and things, or go on expensive trips or experiences. They don’t spend up, when their income goes up so taxable is never touched.
"Time is your friend; impulse is your enemy." - John C. Bogle
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

toddthebod wrote: Tue May 14, 2024 3:46 pm
anon_investor wrote: Tue May 14, 2024 3:41 pm
toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
toddthebod wrote: Tue May 14, 2024 1:09 pm
1. Capital gains tax rates are lower than ordinary income tax rates.
2. Tax rates in retirement are generally lower than tax rates when working.
3. Charity.
4. Death.
5. Inflation.
6. Investment returns.
7. Time preference/time value of money.
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
Not enough. You are potentially saving at ordinary income rates for years before that happens, and if you are making enough such that your capital gains rates are higher than your old income tax rates, you also need to be in a situation where you have to sell those old shares, the likelihood of which goes down as your income goes up.
See previous response. People don’t cap their spending. Spending scales up with income for most people. Plus during accumulation, you are getting a big tax break for your 401k and IRA contributions that goes away in retirement. We also don’t know what future tax law will be. Favorable capital gains tax rates could easily go away.
"Time is your friend; impulse is your enemy." - John C. Bogle
CletusCaddy
Posts: 2963
Joined: Sun Sep 12, 2021 4:23 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by CletusCaddy »

TimeIsYourFriend wrote: Tue May 14, 2024 6:46 pm
CletusCaddy wrote: Tue May 14, 2024 3:44 pm
anon_investor wrote: Tue May 14, 2024 3:41 pm
toddthebod wrote: Tue May 14, 2024 3:29 pm
TimeIsYourFriend wrote: Tue May 14, 2024 2:24 pm
That's fine but there are scenarios where TLH loses. YRMV.
Name one.
When your tax bracket goes up significantly in the future.
If this is the case, it means you have significant non-taxable account income coming in. Which presumably means you have less need to tap the taxable account at all. Which presumably means you are more likely to pass on your taxable account to your heirs at full step up basis.

I’m with Toddthebod, I think there is asymmetric upside to TLH that is not fully appreciated by folks.
So basically you are saying that people tend to cap their spending when they get into a high tax bracket. They don’t live in HCOL areas, buy expensive houses and things, or go on expensive trips or experiences. They don’t spend up, when their income goes up so taxable is never touched.
That’s not what I’m saying at all.

As a matter of fact expensive houses are the most likely use for TLH losses. It takes a median homeowner with a $500k house 30 years of appreciation at inflation rates for the value to double and thereby start to exceed the capital gains exemption.

How many years would it take a $2M house to appreciate at the same rate before the $500k exemption is hit?
HootingSloth
Posts: 1105
Joined: Mon Jan 28, 2019 2:38 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by HootingSloth »

I have spent less than 1 hour tax loss harvesting. Doing so has allowed me to deduct $3000 per year at >40% marginal rates year-after-year in my 30s, and should continue to do so for at least part of my 40s. Those tax savings have been invested in the market and will experience compounding growth for decades. It is possible that, eventually, I will sell the lower basis shares and have to pay a ~20% marginal rate on the difference. At least as likely, the rate will be <10% (i.e., state tax only) or 0% (i.e., shares donated or stepped-up at death). In terms of dollars gained per hour of effort, this may be one of the highest return actions of my life.
Building TIPS ladder for all residual needs and some wants after SS, pension, and paid-off house. Other wants from 5% constant percentage from Risk Portfolio (80/20 AA w/ 80% global + 20% US-tilt)
lemonPepper
Posts: 123
Joined: Wed Feb 18, 2015 6:43 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by lemonPepper »

I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
billaster
Posts: 3183
Joined: Wed Apr 27, 2022 2:21 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by billaster »

lemonPepper wrote: Tue May 14, 2024 7:37 pm I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
Well, first you have to lose some money, so count your blessings.
lemonPepper
Posts: 123
Joined: Wed Feb 18, 2015 6:43 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by lemonPepper »

billaster wrote: Tue May 14, 2024 7:46 pm
lemonPepper wrote: Tue May 14, 2024 7:37 pm I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
Well, first you have to lose some money, so count your blessings.
I had losses to TLH in 2020 and in 2022, but I didn't do anything about them..
CletusCaddy
Posts: 2963
Joined: Sun Sep 12, 2021 4:23 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by CletusCaddy »

lemonPepper wrote: Tue May 14, 2024 7:53 pm
billaster wrote: Tue May 14, 2024 7:46 pm
lemonPepper wrote: Tue May 14, 2024 7:37 pm I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
Well, first you have to lose some money, so count your blessings.
I had losses to TLH in 2020 and in 2022, but I didn't do anything about them..
A good reason to outsource your TLHing to a direct indexing brokerage
billaster
Posts: 3183
Joined: Wed Apr 27, 2022 2:21 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by billaster »

lemonPepper wrote: Tue May 14, 2024 7:53 pm
billaster wrote: Tue May 14, 2024 7:46 pm
lemonPepper wrote: Tue May 14, 2024 7:37 pm I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
Well, first you have to lose some money, so count your blessings.
I had losses to TLH in 2020 and in 2022, but I didn't do anything about them..
But you have gains now? In that case you haven't missed out on much. Your future taxes are reduced because you now have a higher basis than if you had had sold for a loss previously.
lemonPepper
Posts: 123
Joined: Wed Feb 18, 2015 6:43 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by lemonPepper »

CletusCaddy wrote: Tue May 14, 2024 7:58 pm

A good reason to outsource your TLHing to a direct indexing brokerage
Just tarting to research the topic. Do you know if Vanguard/Fidelity provides this service?
CletusCaddy
Posts: 2963
Joined: Sun Sep 12, 2021 4:23 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by CletusCaddy »

lemonPepper wrote: Tue May 14, 2024 9:00 pm
CletusCaddy wrote: Tue May 14, 2024 7:58 pm

A good reason to outsource your TLHing to a direct indexing brokerage
Just tarting to research the topic. Do you know if Vanguard/Fidelity provides this service?
Yes and yes. Personally I use Schwab.
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

TimeIsYourFriend wrote: Tue May 14, 2024 8:22 am Tax loss harvesting is not a tax credit. You are merely shifting that tax liability to the future. That doesn't mean that you are guaranteed to be better off. If you have capital gains that can be offset by TLH in the current year, it probably makes sense. But people take this overboard and end up with really low basis for $3k/year income offset.
If you have a low basis and eventually sell the shares, the lowered basis is offset by the unused carryovers. Your net benefit is the same as if you had harvested just enough in losses to take the $3K/year against ordinary income, and later pay tax on an equal capital gain. Beyond that, you break even, as every additional dollar of capital loss offsets a dollar of capital gain.

More likely, you won't sell all the replacement shares. Since these are low-basis shares, they are the ones you are most likely to donate to charity or leave to your heirs. In either case, you reduce your total taxable income.
Wiki David Grabiner
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

grabiner wrote: Tue May 14, 2024 10:28 pm
TimeIsYourFriend wrote: Tue May 14, 2024 8:22 am Tax loss harvesting is not a tax credit. You are merely shifting that tax liability to the future. That doesn't mean that you are guaranteed to be better off. If you have capital gains that can be offset by TLH in the current year, it probably makes sense. But people take this overboard and end up with really low basis for $3k/year income offset.
If you have a low basis and eventually sell the shares, the lowered basis is offset by the unused carryovers. Your net benefit is the same as if you had harvested just enough in losses to take the $3K/year against ordinary income, and later pay tax on an equal capital gain. Beyond that, you break even, as every additional dollar of capital loss offsets a dollar of capital gain.

More likely, you won't sell all the replacement shares. Since these are low-basis shares, they are the ones you are most likely to donate to charity or leave to your heirs. In either case, you reduce your total taxable income.
In this scenario, future tax rates (after retirement) are higher, favorable capital gains tax rates are no more. So capital losses are used by the $3/year income offset at the lower tax rate.
"Time is your friend; impulse is your enemy." - John C. Bogle
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

Other issues with TLH are more mechanical:

1. You are likely doing this when the market is really volatile. Trying to sell one ETF and buy another ETF can result in losses when the market is all over the place.

2. Even if you do this by exchanging mutual funds, if your choice was say between the S&P 500 and total stock market as partners, there can be big swings between these two (and other types of partners) in a volatile market. From Mar to Apr 2020, which was a good time to TLH, if you TLH'd from Vng 500 into Vng total stock, you lost 1.3% buying back into the S&P 500 after 30 days.

3. For more niche products, an equivalent TLH partner is even more difficult. Different small value funds can have big differences in performance over short periods, for example.
"Time is your friend; impulse is your enemy." - John C. Bogle
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

TimeIsYourFriend wrote: Wed May 15, 2024 6:08 am
grabiner wrote: Tue May 14, 2024 10:28 pm
TimeIsYourFriend wrote: Tue May 14, 2024 8:22 am Tax loss harvesting is not a tax credit. You are merely shifting that tax liability to the future. That doesn't mean that you are guaranteed to be better off. If you have capital gains that can be offset by TLH in the current year, it probably makes sense. But people take this overboard and end up with really low basis for $3k/year income offset.
If you have a low basis and eventually sell the shares, the lowered basis is offset by the unused carryovers. Your net benefit is the same as if you had harvested just enough in losses to take the $3K/year against ordinary income, and later pay tax on an equal capital gain. Beyond that, you break even, as every additional dollar of capital loss offsets a dollar of capital gain.

More likely, you won't sell all the replacement shares. Since these are low-basis shares, they are the ones you are most likely to donate to charity or leave to your heirs. In either case, you reduce your total taxable income.
In this scenario, future tax rates (after retirement) are higher, favorable capital gains tax rates are no more. So capital losses are used by the $3/year income offset at the lower tax rate.
This is theoretically possible but unlikely. If you are in the 24% tax bracket now, and your investment grows by 50% between now and the time you sell, you come out ahead as long as your retirement tax rate is less than 36%. You save $720 this year on the $3K loss, and the $720 savings grows to $960.

And if you do believe this, you should be tax gain harvesting. If you expect a 36% tax rate on capital gains in the future, you should take $100K in capital gains this year and pay $15,000 or $18,800 to save $36,000 later. (Tax gain harvesting does happen when you pay 0% tax on capital gains this year because of unusually low income and do expect a higher tax rate in the future.)
Wiki David Grabiner
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

CletusCaddy wrote: Tue May 14, 2024 7:58 pm
lemonPepper wrote: Tue May 14, 2024 7:53 pm
billaster wrote: Tue May 14, 2024 7:46 pm
lemonPepper wrote: Tue May 14, 2024 7:37 pm I'm 39 and I have not yet done any TLH. I'm getting FOMO of not having done TLH before.
Well, first you have to lose some money, so count your blessings.
I had losses to TLH in 2020 and in 2022, but I didn't do anything about them..
A good reason to outsource your TLHing to a direct indexing brokerage
Not necessarily a good idea; the cost of the brokerage management may exceed the tax savings on tax loss harvesting. The fee for direct indexing is a percentage of assets, while the percentage benefit declines over time as you have more old shares with gains and thus a smaller percentage of harvestable losses.
Wiki David Grabiner
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

grabiner wrote: Wed May 15, 2024 7:57 am
TimeIsYourFriend wrote: Wed May 15, 2024 6:08 am
grabiner wrote: Tue May 14, 2024 10:28 pm
TimeIsYourFriend wrote: Tue May 14, 2024 8:22 am Tax loss harvesting is not a tax credit. You are merely shifting that tax liability to the future. That doesn't mean that you are guaranteed to be better off. If you have capital gains that can be offset by TLH in the current year, it probably makes sense. But people take this overboard and end up with really low basis for $3k/year income offset.
If you have a low basis and eventually sell the shares, the lowered basis is offset by the unused carryovers. Your net benefit is the same as if you had harvested just enough in losses to take the $3K/year against ordinary income, and later pay tax on an equal capital gain. Beyond that, you break even, as every additional dollar of capital loss offsets a dollar of capital gain.

More likely, you won't sell all the replacement shares. Since these are low-basis shares, they are the ones you are most likely to donate to charity or leave to your heirs. In either case, you reduce your total taxable income.
In this scenario, future tax rates (after retirement) are higher, favorable capital gains tax rates are no more. So capital losses are used by the $3/year income offset at the lower tax rate.
This is theoretically possible but unlikely. If you are in the 24% tax bracket now, and your investment grows by 50% between now and the time you sell, you come out ahead as long as your retirement tax rate is less than 36%. You save $720 this year on the $3K loss, and the $720 savings grows to $960.

And if you do believe this, you should be tax gain harvesting. If you expect a 36% tax rate on capital gains in the future, you should take $100K in capital gains this year and pay $15,000 or $18,800 to save $36,000 later. (Tax gain harvesting does happen when you pay 0% tax on capital gains this year because of unusually low income and do expect a higher tax rate in the future.)
Usually we are TLHing stock funds due to their volatility and drawdowns and typical best placement in a taxable acct. A 50% return after several decades in stocks is quite poor. Tax savings, such as the $720 you mention on the $3k income/year aren't typically re-invested, they are spent.

I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
"Time is your friend; impulse is your enemy." - John C. Bogle
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

TimeIsYourFriend wrote: Wed May 15, 2024 9:19 am I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
I'm not going to pay an extra $1,000/year in taxes just in case there might be tax law changes in the future.
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

toddthebod wrote: Wed May 15, 2024 9:23 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:19 am I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
I'm not going to pay an extra $1,000/year in taxes just in case there might be tax law changes in the future.
I hope you are maxing out your 401k and IRA every year as that would be paying an extra $10k/year in taxes at that tax rate otherwise with that line of thought.
"Time is your friend; impulse is your enemy." - John C. Bogle
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

TimeIsYourFriend wrote: Wed May 15, 2024 9:36 am
toddthebod wrote: Wed May 15, 2024 9:23 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:19 am I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
I'm not going to pay an extra $1,000/year in taxes just in case there might be tax law changes in the future.
I hope you are maxing out your 401k and IRA every year as that would be paying an extra $10k/year in taxes at that tax rate otherwise with that line of thought.
I am. Are you saying you don't because you are worried your tax rates might be higher in the future?
User avatar
TimeIsYourFriend
Posts: 721
Joined: Sun Dec 17, 2023 11:19 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by TimeIsYourFriend »

toddthebod wrote: Wed May 15, 2024 9:40 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:36 am
toddthebod wrote: Wed May 15, 2024 9:23 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:19 am I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
I'm not going to pay an extra $1,000/year in taxes just in case there might be tax law changes in the future.
I hope you are maxing out your 401k and IRA every year as that would be paying an extra $10k/year in taxes at that tax rate otherwise with that line of thought.
I am. Are you saying you don't because you are worried your tax rates might be higher in the future?
That's good. Then you understand what a tax deferment is. TLH is no different. I max out 401k but also max out a Roth IRA instead of traditional. That is a split strategy in not knowing what is going to benefit me decades down the road.
"Time is your friend; impulse is your enemy." - John C. Bogle
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

TimeIsYourFriend wrote: Wed May 15, 2024 9:44 am
toddthebod wrote: Wed May 15, 2024 9:40 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:36 am
toddthebod wrote: Wed May 15, 2024 9:23 am
TimeIsYourFriend wrote: Wed May 15, 2024 9:19 am I don't know what is going happen but some have stated here that tax loss harvesting is effectively a tax credit. It is not. It is a deferral of taxes into the future. Whether that benefits you or hurts you depends on a number of factors, including unknowns such as future tax rates, future tax law, your future return, and your actual spending needs in retirement. You can talk about step-up in basis to your heirs but its possible that doesn't exist in the future for your level of assets. Other tax breaks like donating shares might not exist either. We just don't know. We also don't know what tax rates will be. They could even tax unrealized gains as has been proposed in the PRESENT day for those with higher incomes.
I'm not going to pay an extra $1,000/year in taxes just in case there might be tax law changes in the future.
I hope you are maxing out your 401k and IRA every year as that would be paying an extra $10k/year in taxes at that tax rate otherwise with that line of thought.
I am. Are you saying you don't because you are worried your tax rates might be higher in the future?
That's good. Then you understand what a tax deferment is. TLH is no different. I max out 401k but also max out a Roth IRA instead of traditional. That is a split strategy in not knowing what is going to benefit me decades down the road.
Here's the bottom line:
1. There is no facility in current tax law for my long term capital gains to be taxed higher than my current ordinary income marginal tax rate.
2. Any tax law changes will be known in advance.
3. I can choose to realize my capital gains whenever I feel like it.

Therefore, the worst possible outcome for tax loss harvesting is that my income goes way up, there is some legislation that cranks up tax rates in the next year, and I tax gain harvest enough to undo all of the original losses. This will use up any remaining carryforward losses, and I will pay taxes on the amount of losses that I have already recognized on my taxes, in which case I will have benefited to the tune of the difference between my current marginal income tax rate minus the maximum long term capital gains rate times $3,000 times the number of years that have passed.

There is no possible situation where I am worse off having gone through the exercise.
international001
Posts: 2777
Joined: Thu Feb 15, 2018 6:31 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by international001 »

I'm lost. I'm just considering LT capital gains always taxed at 15%. What is the advantage of TLH? Beyond the $3k/year deduction regular income, can you show me an example where TLH it would make a difference. Assume you are not eroding cost basis (e.g. heirs, donating shares)
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

international001 wrote: Fri May 17, 2024 11:23 pm I'm lost. I'm just considering LT capital gains always taxed at 15%. What is the advantage of TLH? Beyond the $3k/year deduction regular income, can you show me an example where TLH it would make a difference. Assume you are not eroding cost basis (e.g. heirs, donating shares)
In 2008, I harvested a large capital loss. From 2008-2012, I took $3K off my regular income.

In 2013, I needed to sell stock at a market peak to make a home down payment, for a large capital gain. Even if I had not sold in 2008, I would have had a capital gain in 2013. I used carryover losses from 2008 to avoid paying capital-gains tax in 2013.

If I had not harvested the loss in 2008, I would thus have paid capital-gains tax in 2013 instead of years later when I sold the 2008 replacement shares. This is still a tax benefit, because the money not paid in tax in 2013 could stay invested.

I have gotten other similar benefits when selling for a capital gain to buy a car, and when switching funds for a capital gain when better options became available.

(I also benefited from the things you said to exclude; since the shares I bought in 2002 and 2008 as replacements are the lowest-basis shares I own, I used many of them for charitable donations, and these will be the last shares I sell and thus I am likely to die first.)
Wiki David Grabiner
steadyosmosis
Posts: 1177
Joined: Mon Dec 26, 2022 11:45 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by steadyosmosis »

toddthebod wrote: Wed May 15, 2024 10:16 am There is no possible situation where I am worse off having gone through the exercise.
Agree.
TLH is so simple, it's a no-brainer for me to do it anytime the opportunity presents itself.
Especially when I see short-term losses.
Age<59.5 | Early-retired | AA ~55/45 | Taxable=100% VTI | Roth IRA=97% equities | HSA=94% equities | Traditional IRA=100% fixed income | I spend from the taxable account |
hudson
Posts: 7336
Joined: Fri Apr 06, 2007 9:15 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by hudson »

steadyosmosis wrote: Sat May 18, 2024 8:34 am
toddthebod wrote: Wed May 15, 2024 10:16 am There is no possible situation where I am worse off having gone through the exercise.
Agree.
TLH is so simple, it's a no-brainer for me to do it anytime the opportunity presents itself.
Especially when I see short-term losses.
Or if you no longer want to own a fund or ETF that shows a long or short term loss.
That $3K per year is the gift that keeps on giving.
It's almost like a deal I made on the early withdrawal on a 3% CD. The bank cut the penalty in half and started paying me almost 5%. My monthly payout increased and the halved early withdrawal penalty reduced my taxable income right beside the $3K TLH reduction. (lines 7 and 10 on the Form 1040-SR)
User avatar
bertilak
Posts: 10860
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: I don’t understand why tax loss harvesting is that beneficial

Post by bertilak »

I-Know-Nothing wrote: Sun Apr 25, 2021 10:49 am I still have a lot to learn, but there must be something I’m missing in my understanding of tax loss harvesting.
It can hep you make significant changes to your AA or asset placement.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
SantaClaraSurfer
Posts: 777
Joined: Tue Feb 19, 2019 10:09 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by SantaClaraSurfer »

What about using lot-specific TLH every January to fund an early year IRA contribution >>> ROTH IRA conversion?

This seems to have a few things going for it:
  • Allows you to strategically sell off high-priced taxable lots from previous years
  • Gives you a win-win incentive to buy in all markets (ie. if a lot goes up, great, if a lot goes down, take the loss while reinvesting)
  • You keep your equity allocation fully invested
  • By moving losing lots' market value to ROTH, you get a tax break in the present, while also taking future taxes off the table
  • You fully invest in your ROTH early in the year, and free up new funds that would have gone to ROTH for other taxable investments
I keep things simple by holding Vanguard Total World (VT) in my ROTH IRA and hold nothing like it anywhere else, so I can TLH anything into it.

Thoughts? Issues?
international001
Posts: 2777
Joined: Thu Feb 15, 2018 6:31 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by international001 »

grabiner wrote: Sat May 18, 2024 7:55 am
If I had not harvested the loss in 2008, I would thus have paid capital-gains tax in 2013 instead of years later when I sold the 2008 replacement shares. This is still a tax benefit, because the money not paid in tax in 2013 could stay invested.
I don't understand this math. At the end, the value of the shares is the same, only the cost basis changes. Having a higher capital gain later (if you do TLH) plus a capital loss is the same as having the lower capital gain (if you don't do TLH)

Imagine you have $2000 in stock with a cost basis of $1000. At some point, you have the opportunity of doing TLH when the stock is priced at $900. You can take a $100 capital loss.

Stock goes from $2000 to $4000 in n years, when you sell.

If you don't do TLH, you'll have net $4000-($4000-$1000)*0.15 = $3550
If you do TLH, you'll have net $4000-(($4000-$900)*0.15-$100*0.15) = $3550

What am I missing?
lemonPepper
Posts: 123
Joined: Wed Feb 18, 2015 6:43 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by lemonPepper »

SantaClaraSurfer wrote: Sat May 18, 2024 8:49 pm What about using lot-specific TLH every January to fund an early year IRA contribution >>> ROTH IRA conversion?

This seems to have a few things going for it:
  • Allows you to strategically sell off high-priced taxable lots from previous years
  • Gives you a win-win incentive to buy in all markets (ie. if a lot goes up, great, if a lot goes down, take the loss while reinvesting)
  • You keep your equity allocation fully invested
  • By moving losing lots' market value to ROTH, you get a tax break in the present, while also taking future taxes off the table
  • You fully invest in your ROTH early in the year, and free up new funds that would have gone to ROTH for other taxable investments
I keep things simple by holding Vanguard Total World (VT) in my ROTH IRA and hold nothing like it anywhere else, so I can TLH anything into it.

Thoughts? Issues?
A couple of questions as I'm not an expert in TLH:

1. Is this only for people 59 and beyond? For younger people IRA distribution will count as regular income and the CG loss can only offset $3k
2. What do you hold in taxable that's tax efficient?
usnaron
Posts: 142
Joined: Wed Oct 28, 2009 9:20 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by usnaron »

Given that $89,250 in taxable income is the cut-off between 0 and 15% long term capital gains: If I am married and my taxable income is $89,249 and I have 10k in long term capital gains, do I pay 0% or 15% on those gains?

I assume that the 10k counts as taxable income and therefore I would pay 15% on those gains.
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

international001 wrote: Sun May 19, 2024 12:23 am
grabiner wrote: Sat May 18, 2024 7:55 am
If I had not harvested the loss in 2008, I would thus have paid capital-gains tax in 2013 instead of years later when I sold the 2008 replacement shares. This is still a tax benefit, because the money not paid in tax in 2013 could stay invested.
I don't understand this math. At the end, the value of the shares is the same, only the cost basis changes. Having a higher capital gain later (if you do TLH) plus a capital loss is the same as having the lower capital gain (if you don't do TLH)

Imagine you have $2000 in stock with a cost basis of $1000. At some point, you have the opportunity of doing TLH when the stock is priced at $900. You can take a $100 capital loss.

Stock goes from $2000 to $4000 in n years, when you sell.

If you don't do TLH, you'll have net $4000-($4000-$1000)*0.15 = $3550
If you do TLH, you'll have net $4000-(($4000-$900)*0.15-$100*0.15) = $3550

What am I missing?
What you are missing is the time value of money in my example; tax loss harvesting allowed me to pay the same dollars in tax in a later year.

In 2008, I sold for a capital loss, which had not been used up by 2013. In 2013, I needed to sell at a market peak, and took a $4000 capital gain which was offset by carryover losses.

Thus I paid no tax on the gain in 2013, but I had a $4000 lower basis on the shares I bought in 2008. If I sell those shares in 2033, I will owe $600 additional tax because of the $4000 lower basis. As a result of tax loss harvesting, I saved $600 in 2013 and will pay $600 in 2033. But that $600 I did not pay in 2013 could stay invested, and will be worth much more than $600 in 2033.

(This is still by far the smallest of the benefits. Most of my 2008 losses offset ordinary income at 25%, 28%, and 24% at $3000 per year, not capital gains at 15%. And some of my replacement shares were donated to charity and thus the reduced basis became irrelevant.)
Wiki David Grabiner
User avatar
grabiner
Advisory Board
Posts: 35554
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: I don’t understand why tax loss harvesting is that beneficial

Post by grabiner »

usnaron wrote: Sun May 19, 2024 4:01 am Given that $89,250 in taxable income is the cut-off between 0 and 15% long term capital gains: If I am married and my taxable income is $89,249 and I have 10k in long term capital gains, do I pay 0% or 15% on those gains?

I assume that the 10k counts as taxable income and therefore I would pay 15% on those gains.
It works like the tax brackets. For the regular tax brackets, every dollar of taxable income in the 10% bracket is taxed at 10%, and once the 10% bracket is full, dollars start to be taxed at 12%, then 22% when that bracket is full. Similarly, every dollar of long-term gains is taxed at 0% until the taxable income including the long-term gains reaches $89,250, and then additional dollars are taxed at 15%.

Thus, if your total taxable income is $89,249 including $10,000 of long-term gains, you pay the tax on $79,249 of ordinary income, and no tax on long-term gains since everything is under $89,250. If your non-long-term-gain taxable income is $89.249, you pay the tax on $89,249 of ordinary income, then $1 of long-term gains is taxed at 0%, and the other $9999 is taxed at 15% for a total tax of $1499.85 on the long-term gains. (You will probably actually pay $1500 because of rounding to the nearest dollar.)
Wiki David Grabiner
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

usnaron wrote: Sun May 19, 2024 4:01 am Given that $89,250 in taxable income is the cut-off between 0 and 15% long term capital gains: If I am married and my taxable income is $89,249 and I have 10k in long term capital gains, do I pay 0% or 15% on those gains?

I assume that the 10k counts as taxable income and therefore I would pay 15% on those gains.
Capital gains stack on top, as you assume. I won't comment on specific numbers because people here get nitpicky about whether you subtract deductions and whether "taxable income" is before or after that.
avalpert1
Posts: 565
Joined: Sat Mar 02, 2024 6:15 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by avalpert1 »

toddthebod wrote: Sun May 19, 2024 8:30 am
usnaron wrote: Sun May 19, 2024 4:01 am Given that $89,250 in taxable income is the cut-off between 0 and 15% long term capital gains: If I am married and my taxable income is $89,249 and I have 10k in long term capital gains, do I pay 0% or 15% on those gains?

I assume that the 10k counts as taxable income and therefore I would pay 15% on those gains.
Capital gains stack on top, as you assume. I won't comment on specific numbers because people here get nitpicky about whether you subtract deductions and whether "taxable income" is before or after that.
Really, people get nitpicky on that? Can't you just refer them to line 15 on the 1040 where it tells you your taxable income... of course that is after you subtract deductions, deductions are about reducing what income is taxable...
User avatar
spencydub
Posts: 150
Joined: Sat Sep 12, 2020 2:40 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by spencydub »

lemonPepper wrote: Tue May 14, 2024 9:00 pm
CletusCaddy wrote: Tue May 14, 2024 7:58 pm

A good reason to outsource your TLHing to a direct indexing brokerage
Just tarting to research the topic. Do you know if Vanguard/Fidelity provides this service?
I use Wealthfront for my taxable account. .25% fee.They let you customize your portfolio, use contributions to keep allocation in balance and will tax loss harvest for you.
User avatar
bertilak
Posts: 10860
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: I don’t understand why tax loss harvesting is that beneficial

Post by bertilak »

spencydub wrote: Sun May 19, 2024 10:54 am
lemonPepper wrote: Tue May 14, 2024 9:00 pm
CletusCaddy wrote: Tue May 14, 2024 7:58 pm

A good reason to outsource your TLHing to a direct indexing brokerage
Just tarting to research the topic. Do you know if Vanguard/Fidelity provides this service?
I use Wealthfront for my taxable account. .25% fee.They let you customize your portfolio, use contributions to keep allocation in balance and will tax loss harvest for you.
If you enroll in Vanguard's Personal Advisor Service (PAS), your PAS advisor will TLH for you. PAS is not a free service. As a PAS customer, you must explicitly enable the TLH feature (no extra charge).
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
SantaClaraSurfer
Posts: 777
Joined: Tue Feb 19, 2019 10:09 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by SantaClaraSurfer »

lemonPepper wrote: Sun May 19, 2024 12:53 am 1. Is this only for people 59 and beyond? For younger people IRA distribution will count as regular income and the CG loss can only offset $3k
2. What do you hold in taxable that's tax efficient?

1. No on age 59, because this is not an IRA distribution.

We sell FROM taxable >>> contribute TO a Traditional IRA >>>> then do a ROTH IRA conversion, which is called Backdoor Roth in the Wiki explainer.

We are middle age, so under 59, but not eligible for a normal Roth IRA. (To do the backdoor Roth Conversion, there must be earned income for the year OVER the amount of the Roth conversion; it also helps to keep things simple if you have no other IRA holdings. Both of those are the case for us.) Given those two conditions, the actual conversion from Traditional IRA to Roth IRA, at least at Vanguard, is straightforward.

2. TLH and selling in taxable.

Throughout the year...after we max our 401(k)s...we purchase ETFs every month in taxable covering global equities: SCHB (US Total) / SCHF (Int'l Dev Total) / SCHE (Emerging Market). (This is a standard, and highly tax efficient, Boglehead strategy.)

At the end of the year, we have 12 months of lots of each of these ETFs. So, selling $7,000 worth of "red lots" with losses, via selling "specific lots," from our taxable holdings of SCHB/SCHF/SCHE and then purchasing VT (Vanguard Total World Equity Fund) inside the Roth IRA allows us to TLH the losses in the ETFs, while purchasing an equivalent cost basis of a basket of global equities inside the ROTH IRA, where their future growth will be tax free.

Doing this every year should help our overall portfolio's tax efficiency, even if there aren't $7,000 worth of losses to be had for TLH every single year. At the end of the day, in drawdown, we will have both the ROTH IRA and all the remaining SCHB/SCHF/SCHE in Schwab, which should give us a great deal of flexibility and tax efficient equity growth.

Hope this answers your questions.
BirdFood
Posts: 242
Joined: Sat Mar 23, 2024 12:15 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by BirdFood »

SantaClaraSurfer wrote: Sun May 19, 2024 11:47 am Throughout the year...after we max our 401(k)s...we purchase ETFs every month in taxable covering global equities: SCHB (US Total) / SCHF (Int'l Dev Total) / SCHE (Emerging Market). (This is a standard, and highly tax efficient, Boglehead strategy.)
Huh. I hadn't thought of--that is, sounds like you choose to distribute among all the different funds partly because with the split, odds are higher that something will have a loss, rather than those losses being canceled out by the gains of other things, as they would be in one fund? So this year you sell this year's loss lots of A, the loss lots of B from two years ago, the loss lots of C from six years ago, etc., etc.?
SantaClaraSurfer
Posts: 777
Joined: Tue Feb 19, 2019 10:09 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by SantaClaraSurfer »

BirdFood wrote: Sun May 19, 2024 1:29 pm
SantaClaraSurfer wrote: Sun May 19, 2024 11:47 am Throughout the year...after we max our 401(k)s...we purchase ETFs every month in taxable covering global equities: SCHB (US Total) / SCHF (Int'l Dev Total) / SCHE (Emerging Market). (This is a standard, and highly tax efficient, Boglehead strategy.)
Huh. I hadn't thought of--that is, sounds like you choose to distribute among all the different funds partly because with the split, odds are higher that something will have a loss, rather than those losses being canceled out by the gains of other things, as they would be in one fund? So this year you sell this year's loss lots of A, the loss lots of B from two years ago, the loss lots of C from six years ago, etc., etc.?
We allocate to SCHB/SCHF/SCHE (we also purchase other ETFs...I am keeping it simple here...but those are the main holdings) primarily because we want to hold a diversified set of equity index funds as our core holdings. But you are exactly correct, a secondary benefit that flows directly from that choice is that there are lots (emerging market SCHE is a great example) going back multiple years that have losses that we can harvest.

When we move to reinvest in the ROTH, since Vanguard Total World (VT) holds everything, we still keep some exposure to whatever we sold (though our overall allocation will change slightly, as it's not precise.)

This makes this approach a bit different, and could be considered a downside versus a TLH practice that pairs new funds to closely approximate the shares that were sold at a loss. Of course, investing in VT in a Roth IRA is not likely be a source of great regret.
the_wiki
Posts: 3165
Joined: Thu Jul 28, 2022 11:14 am

Re: I don’t understand why tax loss harvesting is that beneficial

Post by the_wiki »

I think the main reason that it is less beneficial than advertised is that with a regular portfolio of 3-5 funds, you will quickly get to a point where losses are hard to come by.
toddthebod
Posts: 6450
Joined: Wed May 18, 2022 12:42 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by toddthebod »

the_wiki wrote: Mon May 20, 2024 9:56 am I think the main reason that it is less beneficial than advertised is that with a regular portfolio of 3-5 funds, you will quickly get to a point where losses are hard to come by.
Many of us don't bother except for the once a decade major crashes that generate tons of losses all at once.
dkturner
Posts: 1975
Joined: Sun Feb 25, 2007 6:58 pm

Re: I don’t understand why tax loss harvesting is that beneficial

Post by dkturner »

If you’re in one of the higher tax brackets, and have a significant taxable portfolio, tax loss harvesting can be very attractive. You can take a loss in an S&P 500 fund and reinvest the proceeds in a TSM fund (or vice versa) and get a $3000 annual tax deduction, possibly for the rest of your life - for a few minutes work. Most people with large taxable accounts live on their dividend income, Social Security, and retirement plan benefits, and can sell some of their highest cost basis assets when they need additional cash.
Post Reply