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What happens when TLH losses >$3000?

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  • Zaphod Zaphod 
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    Status: Physician, Small Business Owner
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    Joined: 01/12/2016
    Earnest refinancing bonus

    Well I agree in a sense, the same sense that the phrase about rushing to buy a 30% off sale except when its in the market we all run. Well, of course! The difference in this situation is you’re not just a potential ‘shopper’, you hold the inventory! Its completely different.

    #172073 Reply
    triad triad 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 188
    Joined: 04/29/2016
    So here’s a question: what’s the highest balance any of you have had in TLH dollars carried forward?

    Click to expand…

    I’m curious about this too.    I only started doing TLH this year and I think I already have 15k and that was during october which wasn’t even a recession, was it?  Now I have no reason to consider a roboadvisor for at least the next 5 years…  If another ’08 happens I imagine I’ll have enough for the rest of my life.

    #172077 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 825
    Joined: 02/15/2016
    So here’s a question: what’s the highest balance any of you have had in TLH dollars carried forward? 

    Click to expand…

    I’m curious about this too.    I only started doing TLH this year and I think I already have 15k and that was during october which wasn’t even a recession, was it?  Now I have no reason to consider a roboadvisor for at least the next 5 years…  If another ’08 happens I imagine I’ll have enough for the rest of my life.

    Click to expand…

    I’m carrying forward $60k into this year, and that will be even higher once this year’s losses are added in.  Some of the older posters here who had 7 figure NWs in 2008 have said they have reported hundreds of thousands on their schedule D.

    I would keep aggressively harvesting.  The $3k per year doesn’t save you much, but when you actually sell the gains, the LTCG taxes you save will be worth quite a lot… especially if the LTCG rate increases in the future.

    #172079 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 2748
    Joined: 01/21/2016
    Splash Refinancing Bonus
    So here’s a question: what’s the highest balance any of you have had in TLH dollars carried forward? 

    Click to expand…

    I’m curious about this too.    I only started doing TLH this year and I think I already have 15k and that was during october which wasn’t even a recession, was it?  Now I have no reason to consider a roboadvisor for at least the next 5 years…  If another ’08 happens I imagine I’ll have enough for the rest of my life.

    Click to expand…

    I had just shy of $100k in losses carried forward from 2007/8. I carry close to $40k into 2018. That number should go up for 2019.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #172097 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    @triad
    “ If another ’08 happens I imagine I’ll have enough for the rest of my life.”

    The danger is selling and then switching allocations. The road back can take a long long time.

    #172100 Reply
    PhysicianOnFIRE PhysicianOnFIRE 
    Moderator
    Status: Physician
    Posts: 1441
    Joined: 01/08/2016

    Take all the TLH the market will give you, as long as you’re not sitting out of the market and exchanging into funds you don’t mind holding indefinitely. I don’t know the number, but I’ve got tens of thousands in carryover losses from the last few years.

    Currently, those few simple transactions I made save me about $1,400 a year in taxes. My 1099-B from 2016 shows over $50,000 in paper losses from index funds that year, a year in which the market made double digit gains. I got lucky with my TLH timing after the Brexit vote among other things.

     

     

    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.

    #172104 Reply
     Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 264
    Joined: 08/30/2018
    I believe tax-loss harvesting defeats the purpose of long-term investing. It encourages the tax tail to wag the lifetime wealth accumulation dog. And I believe it is just as illogical as what you initially stated about equities, even though it makes all of the TLHers feel really good about making lemonade out of the lemons they bought as short-term speculators. It is putting lipstick on a pig.
    Click to expand…

    Johanna, I’m not sure I follow your concern about TLH. You juxtaposed it with rebalancing and asserted that TLH was bad for wealth accumulation. Yet done correctly with an appropriate partner fund it is free money, right? That is, the market is already down, and I harvest a paper loss in a similar fund that will rise when the market recovers. How does that  negatively affect wealth accumulation? Not quibbling here. I am genuinely interested in your thought process on this issue.

    #172109 Reply
     orthodds 
    Participant
    Status: Dentist
    Posts: 68
    Joined: 11/07/2017

    I had the exact same thought as Larry. If done right, how is the dog getting wagged? Seems like the dog shouldn’t even notice if the tax tail is doing some TLH with good partners.

    #172118 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 825
    Joined: 02/15/2016

    I wouldn’t expect any asset manager to come out with a ringing endorsement of tax loss harvesting.  It isn’t worth their time to manually do it for their clients, but if they say that you should be taking advantage of it, it’s only natural for their clients to ask why they haven’t switched to a roboadvisor or aren’t doing it themselves.  I appreciate Jfox and some of the other financial advisors here but I think this is one of those subjects where only DIYers can help fellow DIYers.

    #172120 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    @lithium
    “DIYers can help fellow DIYers”.
    $3000 x 35%= $1050
    At Ally’s 2% you save $210 .
    If you don’t have gains, you made $210 for the efforts.
    How much is your time worth or an FA?
    How much was the Robo fee?
    Sometimes TLH becomes an activity trap. Because gains don’t have a wash sale rule, one can consider other options as well. Which robo does that?
    DIYers can and should consider their time and the total portfolio and not just TLH.

    If in rebalancing you had to trim gains, by all means shelter it and grab an extra $3,000.

    #172146 Reply
     Tim 
    Participant
    Status: Accountant
    Posts: 600
    Joined: 09/18/2018

    “Ponder an FA:
    I believe in TLH. I generate tremendous losses.
    So big, you won’t be able to use them. The great part, for taxes you can carry them forward.
    Pay me for your losses!
    Over thirty years, you will have huge losses, the miracle of compounding losses!”

    No one “saves” in taxes.

    #172163 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 825
    Joined: 02/15/2016

    @lithium
    “DIYers can help fellow DIYers”.
    $3000 x 35%= $1050
    At Ally’s 2% you save $210 .
    If you don’t have gains, you made $210 for the efforts.
    How much is your time worth or an FA?
    How much was the Robo fee?
    Sometimes TLH becomes an activity trap. Because gains don’t have a wash sale rule, one can consider other options as well. Which robo does that?
    DIYers can and should consider their time and the total portfolio and not just TLH.

    If in rebalancing you had to trim gains, by all means shelter it and grab an extra $3,000.

    Click to expand…

    $1050 x 0.02 = $21.

    Robo fees are usually ~0.25% AUM.

    To be honest though, TLH doesn’t save in taxes so much as it just defers them.  If I really didn’t have the time to do it manually and on my own terms, I’d have to do a lot of reading to be convinced that the costs of having a robo do it for me would be worth the benefits of deferring the taxes.  More likely I would just try to follow a three or four fund portfolio and call it a day.

    #172168 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6148
    Joined: 01/09/2016
    Johanna, I’m not sure I follow your concern about TLH. You juxtaposed it with rebalancing and asserted that TLH was bad for wealth accumulation. Yet done correctly with an appropriate partner fund it is free money, right? That is, the market is already down, and I harvest a paper loss in a similar fund that will rise when the market recovers. How does that  negatively affect wealth accumulation? Not quibbling here. I am genuinely interested in your thought process on this issue.

    Click to expand…

    Understood. The purpose of rebalancing is to square up your investment allocation on a periodic basis (our choice is annual). TLH is done in the vacuum of “tax harvesting”, i.e. you are not selling investments to rebalance, you are selling specifically to realize gains at no tax cost. The purpose is not to rebalance but is tax-focused. If the result is an imbalanced portfolio, I believe you have done more harm than good.

    My definition of success in investing is to replicate the returns of the market. I believe that is the best any investor can expect over the long term. If this is your goal, you won’t have periodic losses to “harvest”. You will be rebalancing simply to reallocate your portfolio to replicate the long-term returns of the equities market (averaging 10% – 12% annually, dividends reinvested).

    When you rebalance, you are forcing yourself to buy low and sell high. You are selling off the funds that have had a “good year”, down to the % that you want to occupy your portfolio and buying funds that have had a “down” year, to top off your %. Your only goal is replicate the overall market for long-term returns. TLH does not consider portfolio allocations, only taxes.

    We use a 6-split category allocation for portfolios: LCG, SMG, LCV, SCV, Int’l, and RE (Reits). We usually allocate ~20% to Int’l. If, at rebalancing time, for example, Int’l has had a great year and now occupies 25% of a portfolio, that means at least 1 other category occupies a lower % than our target. We’ll sell off enough Int’l to return to 20% and use the proceeds to buy funds that have declined from their target %. (This desired target allocation should be defined in every investor’s IPS.) Taxes are only a secondary consideration – if at all. The goal is optimal long-term growth. And note that, in my example, all funds may be up for the year (or down). You still need to rebalance.

    To me, it seems perfectly logical. But it took awhile to become 2nd nature to me and to move beyond thinking only like a CPA (I’ve been a CPA 30 years longer than I’ve been a holistic financial planner!) So I understand why it is a foreign concept to many here and elsewhere, especially because TLH is accepted as gospel.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #172174 Reply
     childay 
    Participant
    Status: Physician
    Posts: 691
    Joined: 01/09/2016
    The purpose is not to rebalance but is tax-focused. If the result is an imbalanced portfolio, I believe you have done more harm than good.

    Click to expand…

    For the most part people are not TLH into dramatically different funds.  So it is not causing an “imbalanced” portfolio.

    #172176 Reply
     Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 264
    Joined: 08/30/2018
    Johanna, I’m not sure I follow your concern about TLH. You juxtaposed it with rebalancing and asserted that TLH was bad for wealth accumulation. Yet done correctly with an appropriate partner fund it is free money, right? That is, the market is already down, and I harvest a paper loss in a similar fund that will rise when the market recovers. How does that  negatively affect wealth accumulation? Not quibbling here. I am genuinely interested in your thought process on this issue. 

    Click to expand…

    Understood. The purpose of rebalancing is to square up your investment allocation on a periodic basis (our choice is annual). TLH is done in the vacuum of “tax harvesting”, i.e. you are not selling investments to rebalance, you are selling specifically to realize gains at no tax cost. The purpose is not to rebalance but is tax-focused. If the result is an imbalanced portfolio, I believe you have done more harm than good.

    My definition of success in investing is to replicate the returns of the market. I believe that is the best any investor can expect over the long term. If this is your goal, you won’t have periodic losses to “harvest”. You will be rebalancing simply to reallocate your portfolio to replicate the long-term returns of the equities market (averaging 10% – 12% annually, dividends reinvested).

    When you rebalance, you are forcing yourself to buy low and sell high. You are selling off the funds that have had a “good year”, down to the % that you want to occupy your portfolio and buying funds that have had a “down” year, to top off your %. Your only goal is replicate the overall market for long-term returns. TLH does not consider portfolio allocations, only taxes.

    We use a 6-split category allocation for portfolios: LCG, SMG, LCV, SCV, Int’l, and RE (Reits). We usually allocate ~20% to Int’l. If, at rebalancing time, for example, Int’l has had a great year and now occupies 25% of a portfolio, that means at least 1 other category occupies a lower % than our target. We’ll sell off enough Int’l to return to 20% and use the proceeds to buy funds that have declined from their target %. (This desired target allocation should be defined in every investor’s IPS.) Taxes are only a secondary consideration – if at all. The goal is optimal long-term growth. And note that, in my example, all funds may be up for the year (or down). You still need to rebalance.

    To me, it seems perfectly logical. But it took awhile to become 2nd nature to me and to move beyond thinking only like a CPA (I’ve been a CPA 30 years longer than I’ve been a holistic financial planner!) So I understand why it is a foreign concept to many here and elsewhere, especially because TLH is accepted as gospel.

    Click to expand…

    Thank you. I appreciate both the perspective and your willingness to lay it out. I’m personally not dogmatic about TLH. I think it has its place. I definitely agree it is no substitute for rebalancing. To me makes sense to separate the two, and employ both techniques where appropriate. In my own private Idaho, I leave the rebalance to Target retirement funds in tax deferred space, and TLH opportunistically in the taxable space since all the funds are in diversified US stock market indexes.

    #172182 Reply

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