Rotate purchases of tax loss harvesting partners?

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hungrywave
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Rotate purchases of tax loss harvesting partners?

Post by hungrywave » Tue Dec 03, 2019 7:17 am

UPDATE WITH CROWDSOURCED SOLUTION: Thank you all for your advice! This was very helpful.

The simplest and most efficient TLH strategy involves 2 partner funds (eg VTI/ITOT). The strategy is to buy one continually until you need to TLH. At that point, buy the other and continue buying it on into the future until you need to TLH again. At that time, switch back to the first.

This strategy requires that you like 2 funds for long-term holding as you may end up holding a large part of your allocation as your second fund for many years or forever.

Regarding wash sales with monthly or bi-monthly purchases: As long as you can specify shares (eg SpecID at Vanguard or using a similar system at Interactive Brokers) when you sell, just be sure to sell those most recently (ie within 30 days) purchased shares along with the others. Those recent shares won't count as a loss but you won't be in violation of any wash sale rules either as you have sold the "replacement" shares along with the rest of the shares with losses. The recently purchased shares will simply be switched into the partner fund at their current valuation.

Thank y'all again!

*********

I am TLH emerging markets. My partners (with annual costs, including ER, turnover (cost estimated by dividing rate by 100), and taxes), are VWO (0.76%), SPEM (0.78%), IEMG (0.88%), and SCHE (0.98%).

VWO and SPEM are similar in cost. IEMG is about 0.10% more expensive per year. SCHE is about 0.20% more expensive per year.

I want to make monthly purchases to reduce cash drag.

What is the best way in which to purchase? Should I purchase only VWO unless it would trigger a wash sale? Should I alternate between purchasing VWO and SPEM only - given they are the cheapest - assuming those purchases wouldn't trigger a wash sale? Should I rotate through 3 of them, or 4, in order to maximize my TLH opportunities?

:sharebeer
Last edited by hungrywave on Wed Dec 04, 2019 7:30 pm, edited 1 time in total.
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House Blend
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Re: Rotate purchases of tax loss harvesting partners?

Post by House Blend » Tue Dec 03, 2019 9:10 am

I'm content with using pairs of funds.

The one bit of strategy I use is precisely the opposite of what you suggest: I continue buying "Fund A" if Fund A was what I bought last time. When losses in A are available, I harvest them into Fund B and then start buying Fund B only.

This *tends* to concentrate your losses in one fund or the other.

It is certainly possible to end up with losses in both. However, such dilemmas don't bother me. I pick one direction to harvest and move on.

livesoft
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Re: Rotate purchases of tax loss harvesting partners?

Post by livesoft » Tue Dec 03, 2019 9:12 am

I think there is no point in doing this. First of all maybe you are thinking that if you buy something on Monday and sell 2 days later on Wednesday the same shares at a loss that this is a wash sale. It is NOT a wash sale.

Basically, don't make tax-loss harvesting more complicated than it already isn't. Use your noodle when it comes time to tax-loss harvest.
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hungrywave
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Re: Rotate purchases of tax loss harvesting partners?

Post by hungrywave » Wed Dec 04, 2019 11:14 am

livesoft wrote:
Tue Dec 03, 2019 9:12 am
I think there is no point in doing this. First of all maybe you are thinking that if you buy something on Monday and sell 2 days later on Wednesday the same shares at a loss that this is a wash sale. It is NOT a wash sale.

Basically, don't make tax-loss harvesting more complicated than it already isn't. Use your noodle when it comes time to tax-loss harvest.
Isn’t that the definition of a wash sale? https://en.wikipedia.org/wiki/Wash_sale
The world is largely random so don't sweat the small stuff.

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kenyan
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Re: Rotate purchases of tax loss harvesting partners?

Post by kenyan » Wed Dec 04, 2019 11:40 am

hungrywave wrote:
Wed Dec 04, 2019 11:14 am
livesoft wrote:
Tue Dec 03, 2019 9:12 am
I think there is no point in doing this. First of all maybe you are thinking that if you buy something on Monday and sell 2 days later on Wednesday the same shares at a loss that this is a wash sale. It is NOT a wash sale.

Basically, don't make tax-loss harvesting more complicated than it already isn't. Use your noodle when it comes time to tax-loss harvest.
Isn’t that the definition of a wash sale? https://en.wikipedia.org/wiki/Wash_sale
No, a wash sale is when you buy something on Wednesday that you sold on Monday at a loss. You only need to beware of a wash sale after you've sold something. Might as well keep buying the same fund until you actually sell. Having multiple funds to maximize your TLH opportunities would only matter if they're not moving in tandem...but then, they wouldn't be acceptable substitutes, would they?
Retirement investing is a marathon.

livesoft
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Re: Rotate purchases of tax loss harvesting partners?

Post by livesoft » Wed Dec 04, 2019 12:18 pm

hungrywave wrote:
Wed Dec 04, 2019 11:14 am
livesoft wrote:
Tue Dec 03, 2019 9:12 am
I think there is no point in doing this. First of all maybe you are thinking that if you buy something on Monday and sell 2 days later on Wednesday the same shares at a loss that this is a wash sale. It is NOT a wash sale.

Basically, don't make tax-loss harvesting more complicated than it already isn't. Use your noodle when it comes time to tax-loss harvest.
Isn’t that the definition of a wash sale? https://en.wikipedia.org/wiki/Wash_sale
No. You got the first part of a wash sale stuck in your mind, but not the last part of a wash sale that goes on your tax return in your mind. Consider this: Buy on Monday, sell the same shares you just bought at a loss 2 days later. What should you do? If you think it is a wash sale, then you should add the disallowed loss to the cost basis of the shares that were purchased that created the loss. I want you to think very carefully about that and report back. Thanks!

BTW, the misconception arises because people stop reading too soon.
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jdilla1107
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Re: Rotate purchases of tax loss harvesting partners?

Post by jdilla1107 » Wed Dec 04, 2019 12:31 pm

I think the previous commenters may be missing the concern being raised.

Consider this case:

Monday: Regular Monthly Purchases of VWO and SCHE happens.
Wednesday: Desire to tax loss harvest position in VWO. Sell some VWO and buy some SCHE.

This is a wash sale on VWO against Monday's purchase. The solution is to do what House Blend said and only be buying one of the pairs at a time.

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kenyan
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Re: Rotate purchases of tax loss harvesting partners?

Post by kenyan » Wed Dec 04, 2019 2:20 pm

jdilla1107 wrote:
Wed Dec 04, 2019 12:31 pm
The solution is to do what House Blend said and only be buying one of the pairs at a time.
I think that's what everyone is saying. Regarding your specific scenario - once you have taxable losses to harvest, you shouldn't be buying more of that fund, you should harvest the losses. I don't think anyone (other than the OP) is advocating regular purchases of both components of a TLH pair.
Retirement investing is a marathon.

alluringreality
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Re: Rotate purchases of tax loss harvesting partners?

Post by alluringreality » Wed Dec 04, 2019 3:19 pm

As someone that hasn't done this and has only read about it, one fine point that people in my situation seem to want to understand is how to deal with the "30 days before" part of the rule when selling. I think previous discussions indicate you can either wait for that limit to pass after your last purchase, or include the purchase(s) as part of your sale. The explanation is basically that the 30 day before and after rule has to do with not allowing the purchase of replacement shares, so if the recently purchased shares are sold they are not replacement shares. With these sorts of things, I think it makes sense to go to the primary source and not rely on forum discussion, and this seems to be what these discussions usually reference.
https://books.google.com/books?id=TlxsA ... 22&f=false

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hungrywave
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Re: Rotate purchases of tax loss harvesting partners?

Post by hungrywave » Wed Dec 04, 2019 3:46 pm

alluringreality wrote:
Wed Dec 04, 2019 3:19 pm
As someone that hasn't done this and has only read about it, one fine point that people in my situation seem to want to understand is how to deal with the "30 days before" part of the rule when selling. I think previous discussions indicate you can either wait for that limit to pass after your last purchase, or include the purchase(s) as part of your sale. The explanation is basically that the 30 day before and after rule has to do with not allowing the purchase of replacement shares, so if the recently purchased shares are sold they are not replacement shares. With these sorts of things, I think it makes sense to go to the primary source and not rely on forum discussion, and this seems to be what these discussions usually reference.
https://books.google.com/books?id=TlxsA ... 22&f=false
That makes sense. If I am interpreting correctly, selling shares bought within 30 days prior at a loss is taxably neutral. You can still record losses on shares purchased more than 30 days prior?
The world is largely random so don't sweat the small stuff.

aristotelian
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Re: Rotate purchases of tax loss harvesting partners?

Post by aristotelian » Wed Dec 04, 2019 3:48 pm

Personally I would continue buying your top choice until a harvest event occurs. At that point buy your second choice. Then go back to buying your top choice. You shouldn't need more than two.

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kenyan
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Re: Rotate purchases of tax loss harvesting partners?

Post by kenyan » Wed Dec 04, 2019 6:59 pm

hungrywave wrote:
Wed Dec 04, 2019 3:46 pm
alluringreality wrote:
Wed Dec 04, 2019 3:19 pm
As someone that hasn't done this and has only read about it, one fine point that people in my situation seem to want to understand is how to deal with the "30 days before" part of the rule when selling. I think previous discussions indicate you can either wait for that limit to pass after your last purchase, or include the purchase(s) as part of your sale. The explanation is basically that the 30 day before and after rule has to do with not allowing the purchase of replacement shares, so if the recently purchased shares are sold they are not replacement shares. With these sorts of things, I think it makes sense to go to the primary source and not rely on forum discussion, and this seems to be what these discussions usually reference.
https://books.google.com/books?id=TlxsA ... 22&f=false
That makes sense. If I am interpreting correctly, selling shares bought within 30 days prior at a loss is taxably neutral. You can still record losses on shares purchased more than 30 days prior?
Yes, as long as you sell the shares you purchased in the previous 30 days (in addition to your shares sold at a loss), there is no wash sale.
Retirement investing is a marathon.

Sufferlandrian
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Re: Rotate purchases of tax loss harvesting partners?

Post by Sufferlandrian » Wed Dec 04, 2019 7:14 pm

I posted a similar question recently regarding buying funds in an alternating pattern, with the thought being that if I bought ITOT on Jan 1, IVV on Feb 1, ITOT on Mar 1, etc... Whenever the bottom dropped out of the market, I would be able to TLH at least a portion of my portfolio without waiting 30 days.

As others have pointed out, if the market plummets I would likely be selling all my shares, and it wouldn’t matter if I bought ITOT on Jan 1 and sold it on Jan 3. So I plan to just keep buying ITOT until it’s time to TLH to IVV, and then I’ll keep buying IVV until it’s time to TLH back
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hungrywave
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Re: Rotate purchases of tax loss harvesting partners?

Post by hungrywave » Wed Dec 04, 2019 7:21 pm

Sufferlandrian wrote:
Wed Dec 04, 2019 7:14 pm
I posted a similar question recently regarding buying funds in an alternating pattern, with the thought being that if I bought ITOT on Jan 1, IVV on Feb 1, ITOT on Mar 1, etc... Whenever the bottom dropped out of the market, I would be able to TLH at least a portion of my portfolio without waiting 30 days.

As others have pointed out, if the market plummets I would likely be selling all my shares, and it wouldn’t matter if I bought ITOT on Jan 1 and sold it on Jan 3. So I plan to just keep buying ITOT until it’s time to TLH to IVV, and then I’ll keep buying IVV until it’s time to TLH back
Love it! Thank y'all! The above strategy is simple and logical!
The world is largely random so don't sweat the small stuff.

rkhusky
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Re: Rotate purchases of tax loss harvesting partners?

Post by rkhusky » Wed Dec 04, 2019 7:31 pm

jdilla1107 wrote:
Wed Dec 04, 2019 12:31 pm
I think the previous commenters may be missing the concern being raised.

Consider this case:

Monday: Regular Monthly Purchases of VWO and SCHE happens.
Wednesday: Desire to tax loss harvest position in VWO. Sell some VWO and buy some SCHE.

This is a wash sale on VWO against Monday's purchase. The solution is to do what House Blend said and only be buying one of the pairs at a time.
Not a wash sale if you sell the shares of VWO you purchased on Monday.
Is a wash sale if you sell other shares of VWO for a loss and keep the shares of VWO purchased on Monday.

Remember that a wash sale is not necessarily a big deal if the replacement shares are in your taxable account.

Sufferlandrian
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Re: Rotate purchases of tax loss harvesting partners?

Post by Sufferlandrian » Wed Dec 04, 2019 8:31 pm

Right! As livesoft has pointed out elsewhere, even if you do trigger a wash sale, it’s not illegal. They’re not issuing warrants for your arrest or anything. Going to the source to review the rule (and probably confirming my intended action here) before doing anything will prevent any issues. Until then, staying the course.
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Re: Rotate purchases of tax loss harvesting partners?

Post by GreatOdinsRaven » Thu Dec 05, 2019 6:10 am

hungrywave wrote:
Tue Dec 03, 2019 7:17 am
The simplest and most efficient TLH strategy involves 2 partner funds (eg VTI/ITOT).
I’m surprised no one suggested that these TLH partners could be viewed as substantially identical. Although they follow different indexes (ITOT follows S&P Total Market Index (TMI) with 3556 stocks and VTI follows CRSP US Total Market Index with 3541 stocks), they certainly seem similar to me. Perhaps even substantially identical.

Personally, I’d choose different partners like VTI and the S&P 500 index or a large cap (only) index to remove any doubt.

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