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Tax Loss Harvesting – check my plan?

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  • Avatar ID Doc 
    Participant
    Status: Physician
    Posts: 60
    Joined: 02/23/2017

    Just opened our first taxable investing account at Vanguard in October. We have VTSAX in it and we’re looking to tax loss harvest for the first time. Hoping to have someone double check my plan to make sure I’m understanding everything correctly. I have the tax lots as specific ID, and bought in October, November, and December. Last purchase of VTSAX was on 12/17/18.

    1. To avoid the wash sale rule, I need to wait until 1/17/19 to sell, right? (More than 30 days from last purchase).

    2. If there is still loss to harvest on 1/17/19, I’m planning to exchange the VTSAX lots that are down to buy VFIAX. (And also put this month’s investment into VFIAX at the same time).

    3. For 30 days, I do nothing. After that, if market down more, exchange VFIAX back to VTSAX. If the market goes up and stays higher, I would just leave VFIAX there forever? All my future investments could still be VTSAX, right?

    I’ve read the Tax Loss Harvesting posts on WCI and PoF, so I think the above is right, but would love to have someone just give it the ok or point out something that I’m completely missing. Thanks!

    #179764 Reply
    portlandia portlandia 
    Participant
    Status: Physician
    Posts: 381
    Joined: 07/07/2017

    1 &2. No. As long as you are selling all the shares purchased in the last 30 days, you do not need to wait to take advantage of TLH. For example, you could buy 30 shares of VTSAX on 12/17, sell ALL 30 shares on 12/18 with no wash sale triggered as long as there were no other purchases of VTSAX in the 30 days prior or after. If you only wanted to sell the shares purchased in October, but keep the shares purchased within the last 30 days, that would trigger a wash sale.

    3. Correct. If you wanted to get further in to the weeds, you could look into other TLH partners like VLCAX so that you could do more cycles of TLH, but this adds another layer of complexity that may not appeal to you.

     

    #179777 Reply
    Avatar getcloned 
    Participant
    Status: Physician
    Posts: 1
    Joined: 12/19/2017

    If my understanding is correct (and I think it is) you can sell all of your VTSAX lots now without risk of wash sale as long as none of the lots you are keeping were purchased within the 30 days of the sale.   If you sold Oct and Nov without selling December this would be a wash sale because the December shares were purchased (and held) within 30 days of the sale for loss.

    You would exchange into VFIAX but could not buy more VTSAX (or TLH back into VTSAX) until 30 days after this transaction to prevent wash sale.  You could, however sell VFIAX before 30 days and take another loss (if market drops) and switch into, say VLCAX without wash sale.

    Hope that helps.

    #179770 Reply
    PhysicianOnFIRE PhysicianOnFIRE 
    Moderator
    Status: Physician
    Posts: 1516
    Joined: 01/08/2016

    The Oregonian is correct. You do not have to wait — if you sell the 12/17 shares, you do not own replacement shares, so you’re in the clear. You can TLH now.

    If you look closely, the shares I sold in my example were held less than 30 days.

    #3 is spot on. A lot of people seem to want to exchange back to their original position, but I would only do that if there are further losses in VFIAX and 30 days has passed since you traded VTSAX for VFIAX. Be prepared to hold VFIAX for life.

    Cheers!
    -PoF

    40-something anesthesiologist and personal finance blogger @ https://physicianonfire.com [Part of the WCI Network] Find me on Twitter: @physicianonfire

    FIRE. Financial Independence. Retire Early.

    #179784 Reply
    nachos31 nachos31 
    Moderator
    Status: Physician
    Posts: 421
    Joined: 01/12/2016

    …Last purchase of VTSAX was on 12/17/18.

    You mentioned your cost basis is Specific ID which is spot-on. Also make sure you have turned off automatic dividend reinvestment (since those count as mini purchases and start the 30 day clock from them as well). Have the dividends sweep into your settlement fund and then invest them together with one of your future contributions.

    1. To avoid the wash sale rule, I need to wait until 1/17/19 to sell, right? (More than 30 days from last purchase).

    Not necessarily. You can sell the entire lot purchased on 12/17/18 (if there’s a loss) as part of your TLH and then you don’t have to wait 30 days since you’d have gotten rid of any purchases within 30 days.

    2. If there is still loss to harvest on 1/17/19, I’m planning to exchange the VTSAX lots that are down to buy VFIAX. (And also put this month’s investment into VFIAX at the same time).

    That’s the right idea. Again as long as you sell any lots purchased within the 30 days you can still avoid a wash sale. So you can sell your 12/17/18 lots earlier and don’t have to wait until 1/17. What date was your November purchase?

    3. For 30 days, I do nothing. After that, if market down more, exchange VFIAX back to VTSAX. If the market goes up and stays higher, I would just leave VFIAX there forever? All my future investments could still be VTSAX, right?

    Same principle about selling the most recent lot applies if you have a TLH opportunity within 30 days. You have to be comfortable holding the TLH partner like VFIAX potentially for the rest of your life. Yes, new investments could be VTSAX.

    Click to expand…

    Edit: dang nabbit, I always get best out by others when typing on my phone.

    #179789 Reply
    Avatar ID Doc 
    Participant
    Status: Physician
    Posts: 60
    Joined: 02/23/2017

    Thank you all for the replies! Ugh – I wish I would have posted this at the end of December. At that point everything was down more and it could have helped on the 2018 taxes. I was about to pull the trigger then as I originally thought the wash sale was 30 days after only, but then I read 30 days before as well, and thought it would be disallowed. I didn’t realize if I sold them all that it would still be fine. PoF, apparently I didn’t read the post closely enough!

    November purchase date was 11/6.

    Oh well. At this point the 12/17 ones are up a bit, so I’ll need to wait for the October and November ones. If we get a market drop within the next few days, perhaps I’ll do it a few days sooner.

    I’ve read about having a 3rd TLH partner as well and know it’s an option. Good to have as a possibility in case another big drop happens within the 30 days, though my main focus is just not messing up my first attempt at it.

    Thanks again!

    #179791 Reply
    Avatar ID Doc 
    Participant
    Status: Physician
    Posts: 60
    Joined: 02/23/2017

    Oh, and I do have the automatic dividend reinvestment turned off – thanks for the tip. And as of now don’t have VTSAX, VFIAX, or VLCAX in any of our retirement accounts, so that should eliminate the worry about purchases happening there to trigger a wash sale.

    #179793 Reply
    ReFinDoc ReFinDoc 
    Participant
    Status: Physician
    Posts: 143
    Joined: 01/09/2016

    Not exactly on point, but here is an excellent article by Michael Kitces on LTCG and retirement plans.

     

    https://www.kitces.com/blog/tax-rate-equilibrium-for-retirement-taxable-income-liquidations-roth-conversions/

    #180113 Reply

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