Real-life, real-time wash sale & TLH documented

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livesoft
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Real-life, real-time wash sale & TLH documented

Post by livesoft » Sat Dec 12, 2015 8:29 am

As a public service I am going to create a wash sale on purpose and do some screen captures, too, in order to show how Vanguard annotates one's account to show that. Then I will show how to treat it on one's tax return. I will put all this in this thread to give an example to point to in the future.

For instance, I intend to sell shares of VTIAX at a loss before a distribution is automatically reinvested thus creating a wash sale. I will also have a periodic investing amount create a wash sale. Then in a second sell order, I will unload the remaining shares in order to show on a tax return what to do. The thread will not be complete until after I get a 1099-B from Vanguard in 2016.

This first post is just to make sure I go through with it and to solicit thoughts on what the public really wants to see. So post here what you would like to see and I will try to accommodate you both in the executions of orders and screen captures if I can.

Keywords (for easy finding with a search in the future): tax-loss harvesting, TLH, wash sale, real-life, documented, VTIAX, case study

January 2016 update with tax forms:
viewtopic.php?p=2773041#p2773041
Last edited by livesoft on Sun Jan 24, 2016 11:20 am, edited 1 time in total.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 14, 2015 8:05 am

What follows are screen captures of the process to specifically identify shares to sell and place the order to sell at Vanguard.com.

First, I click on "Balance & Holdings" to see my accounts, I've tried to show only the TAXABLE account holding VTIAX and not other funds.

Image

Notice at the top the "Cost basis" control, so I click on it ...
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livesoft
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 14, 2015 8:14 am

When I click on "Cost basis" I get a new display and then click on the "Show details" option to show the details. The screen looks like:

(Note in upper right the "View/Change cost basis method". This thread assumes one has chosen "Specific Identification" for the Cost Basis Method. Make sure you do that and make sure the change is confirmed by Vanguard. You can do that one or more days before trying to sell shares.)

Image

Notice that there are 9 times that shares have been purchased: The initial purchase, a reinvested distribution, and 7 automatic $50 investments. The "Capital gain/loss" columns for the lots (purchases) that have a loss are shown in red.

I will sell some, but not all, of the lots that are red as I show next.

For the purposes of this thread, I want to create a wash sale, but not right away. You will have to come back later this week to see how the wash sale is created.
Last edited by livesoft on Thu Feb 11, 2016 10:49 am, edited 1 time in total.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 14, 2015 8:23 am

I am not going to exchange shares today, but I could have. I simply want to sell some of the shares with a loss.

In the previous screen capture, I click on the "Sell" option and get the following display:

Image

On the left-hand side, I click the checkbox "All" for the lots of the shares I want to sell. I have chosen to sell 7 lots (some are scrolled off the bottom of the window) that have losses. I did not sell the first lot that was purchased because selling would leave the account with only ~5 shares which would kind of defeat the purpose of this thread. The 7 lots were from periodic investing of $50 every 2 weeks. I hope you can see that the Cost basis is 7 x $50 or $350. At the bottom the estimated loss is $14.38 (a gain of -$14.38 :) ).

Recap: I have shown how to select lots with losses to sell. I click on "Continue" and go on.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 14, 2015 8:26 am

I continue with the confirmation screens that vanguard.com shows me whenever I sell shares:

Image

I click on CONTINUE in the lower right.
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livesoft
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 14, 2015 8:30 am

… and I get yet another window telling me what I have done:

Image

Next up:

1. Tomorrow (12/15) another automatic investing purchase will be made. This will create a partial wash sale for the shares sold today.

2. Soon (Friday or Monday), VTIAX will pay a distribution that will be automatically re-invested. This will add to the partial wash sale.

3. I will post screen captures of how the Vanguard.com web site informs me of these things.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Tue Dec 15, 2015 7:48 am

Update after first round of selling. So after selling those 7 lots yesterday, the "Cost basis / Show details" for my VTIAX shares now is simplified to just two lots:

Image

There is no wash sale and no indication of a wash sale even though I sold shares at a loss and purchased shares less than 30 days ago on 12/1.

A benefit of tax-loss harvesting; Simplifying your portfolio. ;)

I still have one lot with a gain and the initial lot with a small loss.

Yesterday's (12/14) sell transaction is posted in the "Transaction history" tab which I will not show just yet.
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Re: Real-life, real-time wash sale & TLH documented

Post by jayhawkerbeef » Tue Dec 15, 2015 7:57 am

Ok I'll bite. Nice work btw...

Few questions:

1) Why sell in two transactions or is this just for case study purposes?
2) If the market turns positive, doubtful for the larger loss of the two lots you still hold, would one still sell?

Bonus question: Also, dividends can be set to not reinvest to mitigate that impact?
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Tue Dec 15, 2015 8:44 am

1) I'm selling in multiple transactions just for the purposes of this thread. I might not have sold at all depending on whether I needed* the money or not as the losses are too small to worry about.

2) Indeed, the loss of about 1% in the first lot comes and goes weekly lately. Since the upcoming disallowed losses should be added to the basis of the first lot, I intend to sell in order to "un-do" in this year the upcoming wash sales. That is, the disallowed losses will turn into allowed losses before the end of the year. That way, the 1099-B and 1099-DIV that I receive in March will show the tax story. And the tax story will be part of this thread.

3) A bonus answer: Note that I left the lots purchased in September which was more than 60 days ago. That means that when I get the distribution, that almost all of my qualified dividends will be qualified. Today's automated purchase will buy shares that will pay the dividend, too, so when I sell them, I will have to make sure that any qualified dividends these December-purchased shares pay are not declared as qualified on my tax return (and 1099-DIV).

*I need the money in January for college expenses, property taxes, and my spouse wants a new car, too.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 7:50 am

It's a WASH SALE!

Here is a screen capture of the account showing the recent two transactions so far this week:

Image

The automated purchase overnight of another $50 installment created the expected wash sale. Here is how Vanguard shows it:

Image

Clicking on the litte i icon, pops up:

Image

So Vanguard has adjusted the basis of this newly purchased lot by $1.32. Do NOT ask me why the market value is $49.99 as it should be $50.00 which was the amount purchased. I guess Vanguard has some round-off issues with their computations.

The actual loss realized on 12/14 was $335.47 - $350 = -$14.43 on 14.066 shares. There were 2.077 shares purchased on 12/15. How does one get $1.32 for the disallowed loss? That is something for me to work out … or not as we will see in the near future.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 10:55 am

I've run into a special problem with the IRS wash sale rules. Actually, I've avoided the problem just by luck. First, here is what the IRS says in its Publication 550 on page 59:

IRS Pub 550 wrote:Loss and gain on same day. Loss from a wash sale of one block of stock or securities cannot be used to reduce any gains on identical blocks sold the same day.


Second, this is followed by an example. If I had sold the 9/24 lot that had a gain along with other lots that had losses on 12/14, it appears that I would not have been able to deduct any of the losses and all the net losses would have been disallowed. From the IRS pub, I cannot tell where the disallowed loss would have gone. Either "Poof!" never to be seen again such as when a purchase in an IRA causes a loss to be disallowed or something else.

Third, I wonder what the definition of an "identical block" actually is? Is it the identical number of shares like in the example given? Could blocks of 100, 101, and 105 shares not be identical?

Does anybody have any ideas what happens in such a case? This is pertinent because I think many folks will sell lots on the same day that have losses and gains.
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Re: Real-life, real-time wash sale & TLH documented

Post by mchop » Wed Dec 16, 2015 11:28 am

livesoft wrote:It's a WASH SALE!


:) Awesome...So proud... like a father announcing the birth of his kid

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 11:41 am

"Chocolate cigars for everyone!" was what I was thinking when I typed that. ;)
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 5:13 pm

livesoft wrote:The actual loss realized on 12/14 was $335.47 - $350 = -$14.43 on 14.066 shares. There were 2.077 shares purchased on 12/15. How does one get $1.32 for the disallowed loss? That is something for me to work out … or not as we will see in the near future.


Well, I cannot figure the $1.32 number out, so if anybody wants to jump in and have a go at an explanation, please try. All the transactions are found in this thread. I'm thinking that grabiner can probably do it. :beer
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 10:15 pm

I was fooled by the $49.99 "market value" reported yesterday for the 12/15 lot purchased yesterday for $50.00. The initial cost basis was $50.00 and then $1.31 was added to that to get a cost basis of $51.31. I should be looking for how the $1.31 disallowed loss was calculated.

Here is one possible way to come up with $1.31 in disallowed loss which got added to a $50.00 basis of the 12/15 purchase to give a basis of $51.31

1. Oldest (first) lot sold was the 9/8 lot. The 2.042 shares sold at $23.85 or $48.70 would mean a loss of $1.30 for this lot.

2. Next oldest (second) lot sold was the 9/22 lot. The 2.083 shares sold at $23.85 or $49.68 would mean a loss of $0.32 for this lot.

Since a total of 2.077 shares were purchased on 12/15, we allocate 2.042 shares to the 9/8 loss, thus disallowing $1.30 loss.
That leaves 2.077 - 2.042 or 0.035 shares to allocate to the 9/22 loss.
If we take the proportion of the loss that is 0.035/2.083 * $0.32 = $0.0054 rounded to the nearest cent is $0.01 loss.

Add $1.30 and $0.01 and we get the $1.31 disallowed loss that was added to the basis of the newly purchased shares.


This week's distribution for VTIAX will be automatically reinvested and create more temporarily disallowed losses.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 16, 2015 10:47 pm

I'm embarassed to write that I didn't have to think too hard about where the $1.31 came from. Instead, all I had to do was click on the Realized gains/losses tab, then on "Show details" to get the breakdown shown in the following screen capture:

Image

So now I'm convinced more than ever that all this stuff is really easy and that Vanguard does keep track of things. In other words, the only thing we have to fear is fear itself.

The other thing to note is that if a poster asks, "How was this a wash sale?", we can answer easily: Click on Realized gains/losses, then Show details, what does it say? :)
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Fri Dec 18, 2015 7:21 am

Last night I just realized that there are two buns in the oven right now. That's right, in this thread you get a bonus on the issue of wash sales because my spouse holds VTIAX in an IRA and is automatically reinvesting the distributions which will create another disallowed loss. And a permanently disallowed loss at that unless something is done quickly.

So not only will today's reinvested dividend of $187.24 change a previous loss to a temporarily disallowed loss in the same account (a wash sale), the IRA will do something worse: It will change a previous loss to a permanently disallowed loss. However, the IRA distribution will be small.

There is still a chance that we could prevent today's creation of wash sales, if we call up Vanguard and see if it is not too late to stop automatic reinvestment.

1. We could stop automatic reinvestment in both accounts, but the distributions would have to go somewhere which is problematic for the IRA. In the taxable account, the distribution could be sent to our checking account. The same could be done with the IRA distribution, but that would count as a withdrawal and taxed.

2. We could have the distribution go to a different fund or a money market fund. Once again, that's OK with the taxable account, but the IRA has only a single investment in it: VTIAX, so there is no other fund to buy shares of and the distribution is too small to meet any initial minimum investment to open a position in a new fund.

3a. But perhaps we could exchange all of the shares of VTIAX in the IRA to another fund and have the VTIAX distribution go into that new fund, too.

3b. Or we could split the IRA into two funds by exchanging some of the shares of VTIAX in the IRA to another fund and have all of the VTIAX distribution go into that new fund.

4. An even more intriguing possibility is to outrun the wash sale created by the IRA, by creating yet a third wash sale by buying more shares of VTIAX in the taxable account today to make all the current realized losses temporarily disallowed and have the cost basis of shares purchased with additional money (say from checking or an exchange from another fund) adjusted higher due to the wash sale. The problem with this is that Vanguard has restricted buying shares in this VTIAX account because of the recent sale. There are ways around this, but maybe not in the next 8 hours. Nevertheless, in a pinch I think I could get this done.

5. Does anybody else have some ideas that I missed?

These are all interesting possibilities, but for today, I am going to do nothing and let things stand, so that I can see if Vanguard sees the interaction of the taxable account and the IRA and tells me about the wash sale created by the automatic reinvesting done in the IRA. Besides, this IRA interaction is probably going to happen to at least one reader in the future, so I want to really see what happens.
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Re: Real-life, real-time wash sale & TLH documented

Post by weltschmerz » Fri Dec 18, 2015 5:53 pm

Livesoft, thanks for posting your experience. I'm sure many folks will find it handy down the road.
After reading all of this, the take-home message for me is that I should do my best to avoid dealing with wash sales. Towards this end, I:
1) Set all distributions in taxable account to go to money market, not reinvest.
2) Only make buys in large increments, instead of many small increments.
3) Try to avoid owning the same investment in different accounts. For example, own Total World Stock in an IRA, but own both the Total Stock/Total International Stock in taxable.

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Fri Dec 18, 2015 6:02 pm

The Dan wrote:Livesoft, thanks for posting your experience.

You are welcome. I must say though that I am creating wash sales on purpose in this thread which is something I would normally not do. I hope folks can see that
a) wash sales are really no worry,
b) wash sales can be easily avoided if one wants to do so,
c) wash sales are not illegal,
d) partial wash sales are not a problem, too,
e) use specific identification for your taxable accounts, and
f) Vanguard does a good job tracking wash sales, lots, cost basis, and so on.

In fact, if I was tax-loss harvesting reasonable amounts (not $14) and liked to automatically reinvest dividends, I would probably just let a partial wash sale be created and not worry about it as Vanguard would do all the tracking for me.
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Re: Real-life, real-time wash sale & TLH documented

Post by ray.james » Fri Dec 18, 2015 6:43 pm

Livesoft,
thanks much for this thread. While over time I remember more rules/become familiar, a picture/demo adds a lot to the memory and understanding the underlying situation.
Thank you.
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Re: Real-life, real-time wash sale & TLH documented

Post by Childay » Fri Dec 18, 2015 7:08 pm

Nice idea for an experiment! I'm sure it will prove useful for the many TLH threads that pop up.

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Re: Real-life, real-time wash sale & TLH documented

Post by Ericson32 » Fri Dec 18, 2015 7:43 pm

Thanks, livesoft. I would go with option 3a in your list of options above. I'll be very interested to see which way you go and how it plays out. Thanks for sharing! :beer

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Fri Dec 18, 2015 7:46 pm

I am doing option 0: Do nothing and generate a third transaction that adds to the disallowed losses.

I've estimated the cost to me of these wash sales as something like less than 30 cents, but I won't know the final numbers until January.
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Re: Real-life, real-time wash sale & TLH documented

Post by grabiner » Fri Dec 18, 2015 9:47 pm

livesoft wrote:I've run into a special problem with the IRS wash sale rules. Actually, I've avoided the problem just by luck. First, here is what the IRS says in its Publication 550 on page 59:

IRS Pub 550 wrote:Loss and gain on same day. Loss from a wash sale of one block of stock or securities cannot be used to reduce any gains on identical blocks sold the same day.


Second, this is followed by an example. If I had sold the 9/24 lot that had a gain along with other lots that had losses on 12/14, it appears that I would not have been able to deduct any of the losses and all the net losses would have been disallowed. From the IRS pub, I cannot tell where the disallowed loss would have gone. Either "Poof!" never to be seen again such as when a purchase in an IRA causes a loss to be disallowed or something else.


Fairmark's explanation

If you have two blocks sold on the same day, one at a loss and one at a gain, you cannot treat those as a single sale for the wash sale rule. Your wash sale disallows any deduction for the loss, and that deduction is instead added to the basis of the replacement shares.

For example, suppose you have 100 shares bought for $30, and 100 shares bought for $60, and you sell all 200 shares for $50. Your net gain is $1000, and you might even report this sale on Form 8949 as a single transaction with a purchase date of "various" and a gain of $1000 rather than as two transactions with a gain of $2000 and a loss of $1000.

However, if you then buy 100 shares for $55 a week later, you have created a wash sale with the 100 shares sold for a loss. You must now report a $2000 gain on the shares bought for $30, and a disallowed $1000 loss on the shares bought for $60; your replacement shares have a basis of $65.
David Grabiner

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Fri Dec 18, 2015 9:52 pm

^Thanks for the explanations. They make sense.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Sat Dec 19, 2015 7:23 am

As expected, the automatic reinvestment of the distribution for VTIAX shows up as a recent transaction. However, the Vanguard.com web site has not updated the Cost Basis information yet, so there is no indication at the moment that this new purchase created more disallowed losses.
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Sat Dec 19, 2015 11:26 am

And a few hours later, the cost basis information is updated to include the latest transaction. Here are 2 screen captures for the changes in the realized and unrealized gains/losses showing the disallowed losses created by the automatically reinvested distribution:

Image

and

Image

At the present time, the interference of the IRA transaction is not reported.
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Re: Real-life, real-time wash sale & TLH documented

Post by mizchief » Tue Dec 22, 2015 11:12 am

Thank you for this example; this is fascinating to watch unfold in real time. And, as a novice, I'm learning a lot.

I have two questions:

1) Could you have avoided the complication with your wife's IRA if you (she) had exchanged her investment into an alternative equity the day before you did your wash sale?

2) You were able to avoid dividend distribution in this example. But, in another case, if these were mutual funds that had paid dividends in the 61 day interval before the sale, the dividends would be counted as non-qualified if you sold these funds. Correct? My question is how to figure out if TLH is worth it in the case of non-qualifed dividends. The non-qualified dividends will be taxed at income tax rates (let's say 25%). Let's say capital gains are taxed at 15%. So in this case, does this TLH transaction only make sense if (.15)*(capital gains loss) > (25)*(nonqualified dividend distribution). ?

Thanks!

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Tue Dec 22, 2015 11:49 am

mizchief wrote:Thank you for this example; this is fascinating to watch unfold in real time. And, as a novice, I'm learning a lot.

I have two questions:

1) Could you have avoided the complication with your wife's IRA if you (she) had exchanged her investment into an alternative equity the day before you did your wash sale?
Yes. That is pretty much my (3a) in this post earlier in the thread: viewtopic.php?p=2723770#p2723770

2) You were able to avoid dividend distribution in this example. But, in another case, if these were mutual funds that had paid dividends in the 61 day interval before the sale, the dividends would be counted as non-qualified if you sold these funds. Correct? My question is how to figure out if TLH is worth it in the case of non-qualifed dividends. The non-qualified dividends will be taxed at income tax rates (let's say 25%). Let's say capital gains are taxed at 15%. So in this case, does this TLH transaction only make sense if (.15)*(capital gains loss) > (25)*(nonqualified dividend distribution). ?
I did not avoid any dividend distribution, so I am not sure what you mean by the first statement. As you will see next week, I will sell the shares acquired on 12/15 which paid a dividend on 12/18, so the qualified dividends from the 12/15 lot will not be qualified because I will not have held the shares purchased on 12/15 for a 61-day holding period.

2.077 shares * $0.189 div per share * 70% qualified = $0.27 of qualified dividend that will become non-qualified when I sell next week.

I suppose one can say that one will pay a small penalty of the tax-rate difference (in this case 10%) on switching the qualified dividends to non-qualified. But since only 70% of the dividend is qualified that ends up being a 7% penalty. On the 27 cents, that would be a 10% penalty of about 3 cents. Alternatively, I can hold the 12/15 lot for the 61 day holding period in order to recover that 3 cents. I don't think it is something to worry too much about.

Actually, none of the tax-loss harvesting in this thread makes any sense at all because it was for ridiculously low amounts both in term of dollar amounts and in terms of a percentage of the investment. This TLH is strictly for informational and teaching purposes only.

In some sense I tried to make every mistake in the book in order to show that these things are really no big deal at all.



Thanks!
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Re: Real-life, real-time wash sale & TLH documented

Post by mizchief » Tue Dec 22, 2015 12:18 pm

Thanks again for the explanation!

I missed that you were going to have a distribution! Yay! Another "mistake"!

I love that you tried to make every "mistake" in the book. I'm trying to think if there are any more you could possibly include. The only other thing I can think of is if your wife or you had an identical ETF (or one that tracked the same index) in an IRA or 401(k) held at another company like TIAA-CREF or Fidelity.

But I think that you've demonstrated that the only "problem" would be that you'd have to do the accounting of the cost basis change yourself in the wash-sale fund; Vanguard wouldn't know about it.

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Tue Dec 22, 2015 12:22 pm

Right now, I still have to do the cost basis change myself for the disallowed loss from buying identical shares in my spouse's IRA since Vanguard has not done it. I doubt that Vanguard will do it, so whether the IRA was at another firm or not does not seem to add to the mistakes.

Update: My qualified dividend penalty calculation is wrong for my situation. I pay 0% tax on qualified dividends and 15% tax on ordinary dividends, so the penalty would be 15% and not just 10% for me.
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Re: Real-life, real-time wash sale & TLH documented

Post by rav2fi » Fri Dec 25, 2015 4:15 pm

livesoft wrote:Right now, I still have to do the cost basis change myself for the disallowed loss from buying identical shares in my spouse's IRA since Vanguard has not done it.


But if it is within your own account, then Vanguard does do it, correct? (I think this is what you've already showed above too - so I think it's a yes). My question is more about filing taxes as that can always be a bit complicated.

When filing taxes next year, would the tax info Vanguard sends us have all the information in it? Reason I'm asking is, I do my own taxes and I'm just used to taking the info Vanguard sends me and plug it into TurboTax and let it do all the work. I would like to avoid any manual calculations during tax time, if possible.

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Fri Dec 25, 2015 4:21 pm

I will eventually show the taxes when I get the 1099-B and 1099-DIV from Vanguard.

So far, Vanguard has not indicated that the transaction in the IRA created a wash-sale in the taxable account. I doubt they ever will. But yes, if in the exact same account, Vanguard seems to track wash sales accurately.

I love love love manual calculations. One can find mistakes in the automatic things that brokers send you. Also, my spouse's company always makes mistakes in the first W-2 that they send out. If we didn't understand taxes and paycheck stubs, we would end up paying more taxes due to mistakes by the payroll department.
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livesoft
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Sat Dec 26, 2015 1:34 pm

I had these thoughts: On Tuesday, I have a periodic investment of $50 happening. I'm thinking of selling $50 of shares the same day to see how Vanguard does the bookkeeping online. I can specifically identify the $50 of shares being sold.

Actually, I can place two separate sell orders and select different shares to sell: One sale could be shares sold at a gain and the other sale could be shares sold at a loss.

Do you think this will break the vanguard web site? :)
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retiredjg
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Re: Real-life, real-time wash sale & TLH documented

Post by retiredjg » Sat Dec 26, 2015 1:47 pm

These are evil thoughts. :twisted:

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Re: Real-life, real-time wash sale & TLH documented

Post by Rose » Sat Dec 26, 2015 5:37 pm

livesoft wrote:
This week's distribution for VTIAX will be automatically reinvested and create more temporarily disallowed losses.


(Groan) It so happened that I missed this post the first time it is posted although funny enough in the same day I sold my position for TLH. And I got tangled with the automatic dividend reinvestment that occurred in the same day of the sale. :oops:

Now there is only <$50 in the account.

My questions then:

A. If I will go back the same amount of shares in after 30-day, should I do anything?

B. If I buy another fund (not exactly similar to avoid wash rule), should I do anything?

livesoft
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Sat Dec 26, 2015 5:43 pm

Rose wrote:
livesoft wrote:
This week's distribution for VTIAX will be automatically reinvested and create more temporarily disallowed losses.


(Groan) It so happened that I missed this post the first time it is posted although funny enough in the same day I sold my position for TLH. And I got tangled with the automatic dividend reinvestment that occurred in the same day of the sale. :oops:

Now there is only <$50 in the account.

If I will go back the same amount of shares in after 30-day, should I do anything?

If I buy another fund (not exactly similar to avoid wash rule), should I do anything?

You will see me sell all my remaining shares next week and you can as well. I think selling the remaining shares will simplify things for you going forward as you will not have any shares left and all the wash-sale calculations will be done by Vanguard and will be wrapped up on your 2015 tax return.

If you were going to buy replacement shares, then I suggest you do so as soon as possible such as Monday. I think there is some benefit to owning the replacement shares rather than cash.

And why the "(Groan) … :oops:"? It is more a case of no-harm-no-foul it seems to me. :)
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 28, 2015 9:52 am

retiredjg wrote:These are evil thoughts. :twisted:

OK, I came to my senses. I have decided not to make additional purchases this week. That also means I will skip the automatic purchase that is supposed to happen tomorrow. This is really easy to do on the Vanguard web site and will help folks who are worried that automatic periodic purchases may interfere with tax-loss harvesting. One navigates to the page on the web site where one can edit the automated options. I clicked on the "Skip once" check box for tomorrow's investment date and then clicked on "Submit" (not shown).

Image

Of course, one still has the possibility of buying/selling even while automated investing is going on.
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rav2fi
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Re: Real-life, real-time wash sale & TLH documented

Post by rav2fi » Mon Dec 28, 2015 12:25 pm

I've been reading a lot on TLH and the wash sale rule and I think I'm beginning to understand the whole concept. But I'd like to run a few scenarios with you guys just to make sure I am getting this.

My goal is to TLH from VTIAX to VFWAX. Have a loss of about 5K this year. This is my first time doing TLH.

Image

So in the scenario above, I had purchased VTIAX on 12/08 and dividends automatically re-invested on 12/18 as well (I've turned off all automatic re-investments now).

a) So when I exchange to the new fund (with Spec ID), if I leave these two lots intact in VTIAX, these would count as replacement shares and wash sale would be triggered. Is this correct?

b) But these December lots are still in the positive territory so there is no loss but that could change based on how the market does today. What would happen if these stay positive and I leave these as is?

c) Any shares purchased before the 30 day period prior to today (if I TLH today) would not trigger a wash sale if I keep those shares intact in VTIAX, correct? Since these were purchases prior to 30 days in advance, these would not count as replacement shares.

d) If I sell all the lots with losses, but also sell the lots purchased on 12/08 and 12/18 even if they're positive (rather than keeping these), then the wash sale should not be triggered as whatever could have counted as replacement shares now have been sold as well. Is my understanding correct?

As I have never TLH before, a few scenarios where I am confused :confused but hopefully once I go through with it and experience it myself, it will be much more clearer from next time onwards :)

Thanks all.

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 28, 2015 12:32 pm

rav2fi wrote:a) So when I exchange to the new fund (with Spec ID), if I leave these two lots intact in VTIAX, these would count as replacement shares and wash sale would be triggered. Is this correct?
Yes, this is correct.

b) But these December lots are still in the positive territory so there is no loss but that could change based on how the market does today. What would happen if these stay positive and I leave these as is?
Nothing different. They would still create a wash sale if you sold other shares at a loss within 31 days of purchasing these shares.

c) Any shares purchased before the 30 day period prior to today (if I TLH today) would not trigger a wash sale if I keep those shares intact in VTIAX, correct? Since these were purchases prior to 30 days in advance, these would not count as replacement shares.
That is correct. But that does not mean a wash sale will not be created by other shares.

d) If I sell all the lots with losses, but also sell the lots purchased on 12/08 and 12/18 even if they're positive (rather than keeping these), then the wash sale should not be triggered as whatever could have counted as replacement shares now have been sold as well. Is my understanding correct?
Essentially correct. Vanguard may say there is a wash sale and add the disallowed loss to the 12/08 lot which would then be sold giving you the disallowed loss back. I do not really know how Vanguard will handle it, but the end result to you is no disallowed losses.
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Re: Real-life, real-time wash sale & TLH documented

Post by rav2fi » Mon Dec 28, 2015 1:27 pm

livesoft wrote:
rav2fi wrote:c) Any shares purchased before the 30 day period prior to today (if I TLH today) would not trigger a wash sale if I keep those shares intact in VTIAX, correct? Since these were purchases prior to 30 days in advance, these would not count as replacement shares.
That is correct. But that does not mean a wash sale will not be created by other shares.


As always, thank you livesoft :). Can you explain this part bit a more? When you say "But that does not mean a wash sale will not be created by other shares," you mean shares within the same account or my other accounts (IRA, 401K etc.)? I don't hold VTIAX in any of my other accounts. In this case, how would other shares (purchased prior to 31 days in advance of today) create a wash sale, if I sell all negatives and the December lots?

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 28, 2015 1:40 pm

In your c) you did not state that you would sell the December lots, so my response took your ambiguity into account.
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rav2fi
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Re: Real-life, real-time wash sale & TLH documented

Post by rav2fi » Mon Dec 28, 2015 1:54 pm

livesoft wrote:In your c) you did not state that you would sell the December lots, so my response took your ambiguity into account.


Ahh, got it. I should have been clearer there. Here comes my first TLH. Thanks again, much appreciated. Cheers! :sharebeer

ThisTimeItsDifferent
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Re: Real-life, real-time wash sale & TLH documented

Post by ThisTimeItsDifferent » Mon Dec 28, 2015 3:11 pm

Thanks for the example!
That example mostly involved the case of a sale and then a purchase.

In fact you said for the first transaction (purchase and then sale):
livesoft wrote:There is no wash sale and no indication of a wash sale even though I sold shares at a loss and purchased shares less than 30 days ago on 12/1.

Shoudn't that itself have been a wash sale?

In my situation, https://www.bogleheads.org/forum/viewtopic.php?f=1&t=180031&newpost=2734732 there was a purchase (auto-reinvestment of distributions) and then (will be) a planned sale.

In your example Vanguard added to the basis of the subsequently purchased shares from the losses of oldest sold lot first and the remainder to the next lot(s) sold after the subsequent purchase, right? So you could not take those losses now?

In my case I want to sell the shares purchased earlier, within 30 days, but also other shares. I think the wash sale prevents me from selling other shares at a loss and excluding those recently purchased shares from the sale, but as long as I include those recently purchased shares, there's no wash sale, right? or at least, the disallowed losses from other shares are added to the basis of the just purchased shares when I sell them even at the same time? Then my total losses will be the same?

livesoft wrote:Here is one possible way to come up with $1.31 in disallowed loss which got added to a $50.00 basis of the 12/15 purchase to give a basis of $51.31

1. Oldest (first) lot sold was the 9/8 lot. The 2.042 shares sold at $23.85 or $48.70 would mean a loss of $1.30 for this lot.

2. Next oldest (second) lot sold was the 9/22 lot. The 2.083 shares sold at $23.85 or $49.68 would mean a loss of $0.32 for this lot.

Since a total of 2.077 shares were purchased on 12/15, we allocate 2.042 shares to the 9/8 loss, thus disallowing $1.30 loss.
That leaves 2.077 - 2.042 or 0.035 shares to allocate to the 9/22 loss.
If we take the proportion of the loss that is 0.035/2.083 * $0.32 = $0.0054 rounded to the nearest cent is $0.01 loss.

Add $1.30 and $0.01 and we get the $1.31 disallowed loss that was added to the basis of the newly purchased shares.


If there is a purchase and then a sale, where would the disallowed loss go? Also, to other (sold or unsold) lots in FIFO order?
Last edited by ThisTimeItsDifferent on Mon Dec 28, 2015 3:21 pm, edited 3 times in total.

livesoft
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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Mon Dec 28, 2015 3:16 pm

One more thread for you to read: viewtopic.php?f=1&t=179139
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ThisTimeItsDifferent
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Re: Real-life, real-time wash sale & TLH documented

Post by ThisTimeItsDifferent » Mon Dec 28, 2015 3:37 pm

livesoft wrote:One more thread for you to read: viewtopic.php?f=1&t=179139


Thanks. That's helpful too.

They key thing for this case seems to be:
livesoft wrote:
12/10 Sold 5 shares purchased in Dec: $50 * 5 - $75 * 5 = -125.
This is not a wash sale since the shares sold were those purchased a few days before. There are no replacements shares still around that were purchased in the previous 30 days.


I would have no replacement shares still around that were purchased within 30 days, so I can take the whole loss now.

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Tue Dec 29, 2015 3:16 pm

A moment ago I submitted an order to sell all the remaining shares of VTIAX in this taxable account since today is a nice up day. This will close out the disallowed losses and I will post the screen capture when the bookkeeping becomes available tomorrow. I will have a net short-term gain in this investment for the past 4 months.
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Re: Real-life, real-time wash sale & TLH documented

Post by Rose » Tue Dec 29, 2015 4:24 pm

livesoft wrote:
Rose wrote:
livesoft wrote:
This week's distribution for VTIAX will be automatically reinvested and create more temporarily disallowed losses.


(Groan) It so happened that I missed this post the first time it is posted although funny enough in the same day I sold my position for TLH. And I got tangled with the automatic dividend reinvestment that occurred in the same day of the sale. :oops:

Now there is only <$50 in the account.

If I will go back the same amount of shares in after 30-day, should I do anything?

If I buy another fund (not exactly similar to avoid wash rule), should I do anything?

You will see me sell all my remaining shares next week and you can as well. I think selling the remaining shares will simplify things for you going forward as you will not have any shares left and all the wash-sale calculations will be done by Vanguard and will be wrapped up on your 2015 tax return.

If you were going to buy replacement shares, then I suggest you do so as soon as possible such as Monday. I think there is some benefit to owning the replacement shares rather than cash.

And why the "(Groan) … :oops:"? It is more a case of no-harm-no-foul it seems to me. :)


:oops: Groan is for I wished I followed your thread when doing it. I got luck out that I already set the dividend not to be reinvested.

Thank you for this post. I will be crossing my finger to see the posting on the resulting taxes coming February....

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Re: Real-life, real-time wash sale & TLH documented

Post by livesoft » Wed Dec 30, 2015 10:03 am

The sale of my entire taxable position in VTIAX yesterday results in the the following screen capture which show the realized capital gains/losses on the Vanguard.com web site in my account. I have split the view to make it fit.

The top image shows a capital loss in another fund that I realized for tax-loss harvesting purposes and a $499.45 short-term capital gain in VTIAX (the subject of this thread). The $499.45 + the two distributions gave me a return of about +3.3% for the 4 months which is not bad since VTIAX will have a 2015 performance of about -3% unless something unusual happens tomorrow.

I hope folks can readily see that I will not pay taxes on the short-term capital gain from my short-term investment in VTIAX.

Image
[…image edited…]
Image

This post is not the end of the story though. When I get the 1099B I will show how to account for the wash sale created by the purchase of VTIAX shares in my spouse's IRA. Vanguard has not taken care of that for me and they are not legally required to do so. However, all the wash sales within this taxable account are completely and accurately taken care of by Vanguard.

Bonus question: What do you notice about the "Date acquired" for the shares that had their losses adjusted for the disallowed losses created by the wash sales?
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Re: Real-life, real-time wash sale & TLH documented

Post by Doc » Thu Dec 31, 2015 12:29 pm

livesoft wrote:Bonus question: What do you notice about the "Date acquired" for the shares that had their losses adjusted for the disallowed losses created by the wash sales?


It appears if I follow your transactions correctly that the "acquired date" is the date of the buy transaction that triggered the wash sale.

However the Regs say,
Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities.

http://www.irs.gov/pub/irs-pdf/p550.pdf

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A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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