In June of this year, there was a period of time where stocks dropped for about 6 days straight. In fact, if you look carefully at the chart, there were similar episodes, at least for international stocks, in February, March, and May as well. If you had purchased an international stock index fund at any point during 2018, chances were very good by June 19th that you had a loss you could tax loss harvest, especially if you had not already done it this year. (Obviously the really astute probably already did this in February, March, or May.)
So I sent a Tweet out to my Twitter followers:
and linked to a blog post I had on Tax Loss Harvesting (TLHing), at which point I realized I had not written on this subject since 2011. So I thought I'd document my process on how to tax loss harvest with Vanguard.
How to Tax Loss Harvest at Vanguard
Let me demonstrate. First, I went to Vanguard and logged in. I clicked on “My Accounts” and then “Account Overview” and then our taxable “Brokerage” account. Finally, I clicked on “Cost Basis” and this is what I saw:
This is the money shot where you determine whether you have any losses to harvest. You can see the funds, ETFs, or individual securities on the left by ticker symbol, then the name of the fund, the number of shares you own, the total cost, the market value, the short-term gain or loss, the long-term gain or loss, and the total gain or loss in the column on the right. That's the one to look at. If anything in that column is red, then you've got some work to do. As you can see in my case, our VTIAX holding (Total International Stock Market Fund) has a $5,350.52 loss at the beginning of the day.
Share Identification
Vanguard (and most brokerages) offer three cost basis methods:
- First In, First Out
- Average Cost Basis
- Specific Identification
As a general rule, the best one is “Specific Identification” and the worst one is “First In, First Out”. That's because when you go to tax loss harvest, you usually want to sell the LAST shares you bought, not the first ones, because the last ones generally have the biggest loss to harvest.
If you look at the details under the Total Stock Market Index Fund, you can see that I bought various shares on various dates. This is the benefit of using “Specific Identification”. With one click on “Show details” I can see that I don't have a single “lot” of VTSAX that has a loss.
Despite that Specific ID is the best, the default setting at Vanguard is Average Cost Basis, which you should change to Specific Identification. Of course, it takes a day to make that change, and I didn't want to wait in case the market had a huge rebound the next day. The default during that day while the change is being made is, strangely enough, First In, First out! I know, crazy right? At any rate, it turned out for me it didn't matter, because ALL of the lots of VTIAX that I owned were purchased at a higher price than what it was now trading at. Since I hadn't picked “Specific Identification” a priori, I had to look that up manually under the “transaction history” page. If I limit the parameters to VTIAX and “Buy”, I can see that I purchased it at $30.47, $30.75, $30.77, and $30.63.
Since it traded yesterday at the close at $29.91, it doesn't matter whether I use FIFO, Average Cost Basis, or Specific ID, it's all the same!
Also, since the market was open, I quickly went and looked up the ETF counterpart of this fund to make sure my loss wasn't being erased due to market action today. This is what I found:
Looks like it was down another 1.29%, so it was a pretty safe bet that not only would my loss NOT be erased, but that there would be some additional loss there to harvest by 4 pm EST when the tax loss harvesting transaction takes place. So let's put in the order.
Making the Transaction
Okay, now the first thing you do is hit “Exch” for exchange on the right side of the screen for the fund I want to exchange, because I'm going to exchange one fund for another.
That takes you to this screen:
It all was bought at a price higher than what it can be sold for today, so I chose to sell 100% of it. As noted above, I was stuck with the FIFO method on the day I made the exchange, which was fine in my case. Next, I needed to choose a fund to exchange into. Remember the goal with tax-loss harvesting is to choose something that is highly correlated with the original fund, while not, in the words of the IRS, substantially identical. At Vanguard, the usual first choice for the Total International Stock Market Index Fund is the FTSE All-World ex-US Index Fund. Since I had more than $3K, I was using the Admiral shares instead of the higher-priced Investor shares. Why is that fund such a great “TLHing partner?” Well, take a look at this:
As you can see, the performance is nearly identical both year to date and over the last 5 years. The expenses are identical and they both invest in “large international blend” stocks. So clearly, the funds have very high correlation. I should expect nearly identical performance out of them. But are they “substantially identical” in the eyes of the IRS? I would argue that they are not. For example, VTIAX holds 6,330 stocks, has $343 Billion invested in it, and is managed by Michael Perre and Christine Franquin. VFWAX holds 2712 stocks, has $32 Billion invested in it, and is managed by Christine Franquin and Justin Hales. I think I've got a very good argument for the IRS that they are NOT identical given that one holds 4000 stocks that the other does not. At any rate, I've NEVER heard of anyone having to actually make this argument. The IRS simply doesn't care as long as you're buying a different fund. So VFWAX it is. I choose it on the next page.
Then I agree to get my fund prospectus electronically (like I'm going to read that for a fund I've held off and on for years.)
Next is the submission page followed by the nearly identical confirmation page.
Voila! I have tax loss harvested. Note that Vanguard won't let me buy any more shares of VTIAX for a month in this account, which is fine since I don't want to buy any for a month in any account anyway because it would cause a “wash-sale” and void my tax loss.
Adding Up the Benefit
So how much did I save in that 30 seconds? Let's add it up.
First, let's see what the shares actually sold at. If I go back at the end of the day or the next day, go to cost basis in that account, and look at “realized gains/losses” I see that my actual loss was $7,689.50.
When tax loss harvesting, up to $3,000 can be applied against your ordinary income, which in my case is taxed at 37% Federal + 5% state, or 42%. So a $3,000 deduction is worth $3,000 * 42% = $1,260 off my tax bill. The remaining loss is carried forward to the next year. Of course, the $3,000 loss is only good if there is $3,000 left AFTER it is applied against all of your short and long-term capital gains on Schedule D. 
Now for most of us, our tax software (or that of our tax preparer) takes care of all of those complicated looking worksheets for us. But the bottom line is that ONLY the amount of your loss above and beyond your short-term capital gains and long-term capital gains can be applied to your ordinary income and only up to $3,000 per year with the remainder being carried forward to future years. So in my case, I won't really know exactly how much money I saved by tax loss harvesting until I find out what my capital gains for the year are. But even if I had more than $7,689.50 in long-term capital gains distributed from my mutual funds, at a minimum I would save the taxes on those, currently at 23.6% for us. $7,689.50 x 23.6% = $1,815. Perhaps more likely, $3,000 of it goes against my regular income ($1,260 off my tax bill) and $4,690 goes against some LTCG distributions ($1,107) for a total of $2,367 off my tax bill. Certainly worth 30 seconds of my time.
But You're Only Deferring the Taxes!
Now, the semi-knowledgeable critic might point out that TLHing really only defers paying taxes, it doesn't actually lower them. So let's make that critic more knowledgeable and less critical and point out why TLHing is still a good idea, particularly for me. There are three aspects to consider.
Platinum Level Scholarship Sponsor
First, it is true that if I eventually sell these funds, that I now have a lower basis in them, and thus a larger percentage of what I sell them for will be gain and have taxes due. However, money now is worth more than money later. This is what we call the Time Value of Money. If you assign 4% per year to its value, and you defer paying those taxes for 10 years, well, 1.04^10 – 1 = a 48% gain on that money. So if you saved $1,260 in taxes now and paid $1,260 in taxes later, your actual savings is $605. Sure, that's less than $1,260, but it sure beats a kick in the teeth.
Second, there is a bit of an arbitrage between tax rates. If you can come up with a $3,000 deduction against your ordinary income tax rate (let's use 42%) now and then later have to pay taxes on that $3,000 at your long-term capital gains rate (let's use 23.8%), you're saving $1,260 and paying $714, a tax savings of $546. Add that to the $605 from the time value of money over a decade, and you're back up to $1,151, awfully close to the $1,260 you knocked off your initial tax bill.
Finally, the critic is not only semi-knowledgeable about the tax code, but he's semi-knowledgeable about my personal tax situation. You see, there is a very good chance I will never sell these shares. They will probably either be donated to charity (in which case I not only get the itemized tax deduction on Schedule A, but neither I nor the charity pay any long-term capital gains whatsoever) or left to my heirs (where they receive a step-up in basis at death and thus no income taxes due.) So the tax savings is very much real to me. Tax loss harvesting and then flushing the additional gains out of your portfolio through charity (and death) is a very tax-efficient way to invest.
Bonus Material: Another Opportunity to Tax Loss Harvest
A few days after I did all this tax-loss harvesting (and wrote this post), I had the opportunity to do it again and score another $7,800 in tax losses. I thought there might be a worthwhile lesson in telling you about those transactions too. Both international stocks and US stocks were down for the day and I had some big red negative numbers when I checked my basis. So I sold a couple of lots of my Total Stock Market Index Funds (only two had a loss, the rest still had a gain.) I exchanged into the Vanguard Large Cap Index Fund (a bit more like TSM than 500 Index is.) I also sold the FTSE Ex-US Fund that I had just purchased. What did I exchange that into? 20% into the Vanguard Emerging Markets Stock Index Fund and 80% into the Vanguard Developed Markets Index Fund. Check it out:
So now, after doing all that, under the cost basis tab I can see my realized losses for the year.
Now I've got over $15K in losses to use on my 2018 tax return, which I can really use given that we're taking the standard deduction this year after bunching many of our itemized deductions last December. For now, I'm done with tax-loss harvesting. How do I know I'm done? Because when I look at all my tax lots on the “unrealized gains/losses” tab I see nothing but green:
The Bottom Line
Okay, so what have we learned about tax loss harvesting today? Let's list it out:
# 1 You should do it if you are given the chance. It will save you money.
# 2 Beware the wash-sale rules. You can't buy back what you just sold in any investing account (including your spouse's) for 30 days. No, you can't buy more shares just before you sell them either. That 30 days goes both forward and backward.
This nine year old might not be able to grow a real beard, but he could definitely figure out tax loss harvesting.
# 3 Don't sweat the substantially identical rules. As long as you're buying a different fund (not a different share class of the same fund) the IRS isn't going to hassle you about it. So buy a fund that is very highly correlated to the original one. Some good examples of TLHing partners for commonly owned Vanguard funds include:
- Total Stock Market Index – Large Cap Index, 500 Index, Fidelity TSM, Schwab TSM
- Total International Stock Market Index – FTSE All World Ex-US Index, Developed Markets Index, Fidelity TISM, Schwab TISM, a combination of Developed Markets and Emerging Markets Index Funds
- REIT Index – Fidelity Real Estate Index Fund, Schwab REIT ETF
- Small Cap Value Index – Small Cap 600 Value Index, Russell 2000 Value Index
Hard-core investing aficionados can argue all day about the merits of one partner over another, but the point is to get something reasonably similar whenever you can. Sometimes you do need two or three of them for a single asset class if the market is dropping rapidly, but you always have the option to just wait 30 days before repurchasing what you sold. Of course, there is risk there that the market rebounds rapidly and you end up selling low and buying high, so I prefer to exchange to another fund rather than wait.
What do you think? Have you tax-loss harvested before? Why or why not? What did you find difficult about it? What recommendations do you have for someone who has never done it before? Comment below!
Great run down on TLH.
I haven’t had to to do this yet as extra money not put into our 403B/401K and backdoor Roth is going towards student loans, but look forward to doing it at some point in the future.
It seems pretty straightforward after reading your tutorial and the one that POF previously made.
I suppose the long game is to wait until that fund declines again and to jump back into the other fund as long as it has been more than 30 days? Does the IRS look at this strangely if you have jumped back and forth into the same two funds multiple times?
TPP
It may not decline again is the issue.
No, the IRS doesn’t look at it strangely as long as you follow the rules.
If you have VTI in your roth accounts? Can you still TLH by selling VTSAX? I will guess not?
It’s okay to have it in your Roth account, you just can’t buy shares in your Roth account within 30 days of tax loss harvesting. The place most get burned is with automatic investment plans or reinvested dividends. But the only wash sales are in the amount you bought, so for a dividend that’s usually not much. And truthfully, nobody seems to actually be looking so it’s really an honesty thing. Not much goes to the IRS aside from what you report to them on their return. So while I would avoid buying for 30 days in any account, I wouldn’t lose much sleep over this issue.
Thanks. So I did TLH exactly as above but after 30 days if I want to go back to VTIAX from VFWAX I will have some short term capital gains correct?
Also another question.: I don’t have any long term gains as I just opened the investment account. So if I don’t have any other short term gains, can I still claim these losses?
Maybe if it went up in value. You don’t have to go back.
You can use those losses to offset up to $3K a year in ordinary income if nothing else.
Will this apply if you hold the same fund in your 403/401/457 accounts?
Not exactly sure what you mean by “this” but I think so.
I really like the use of a a double tax loss harvest if it occurs within 30 days by exchanging it into yet a 3rd non identical but similar vehicle..
I think it would be extremely helpful for novices if you list what are great funds to go between for TLH for the major ones in vanguard and all the other popular brokerages (I’m personally in vanguard)
have never done a 3rd fund for the 2nd TLH in a month but this is what I have come up with for the major index funds I carry:
For my domestic index I go between vtsax and vfiax (vanguard total stock and 500 stock)
For International I go between vtiax and vfwax (total international and ftse all world – us).
Here is what I have come up with
Domestic
VTSAX–>VFIAX–>VLCAX
International
VTIAX–> VFWAX–> 80% VTMGX /20%VEMAX (just learned this percentage today thanks WCI)
The only caveat is when you switch partners you have to be willing to hold them long term,
Not long term, only 30 days and then you can get back in if you want.
I also use vanguard long bond index and long treas, and intm bond index and intm treas as partners. The index is mostly t bills anyway.
I meant long term if the market takes an uptick during those 30 days. You may be in a situation where your gains outweigh the losses, so you have to be willing to hold long term,
I did list them at the end of the post. Yes, those are excellent choices.
Just saw it, serves me right when I was in a rush this morning.
I also have a question on TLH. I think I have done this and gotten dinged because of having my funds having a DRIP (automatic dividend reinvestment). Do you bother turning this off prior to TLH or do you not even use DRIP?
It’s best to turn off reinvestments, but even if you forget, you only wash the reinvestment, not the whole exchange.
TLH newbie here…what does the ‘wash’ actually mean? Is it a penalty on any money used to buy those same funds if <30 days or does it just get counted against the $3000 deduction you are normally allowed to take?
It just disallows the loss. No penalty.
I used to, but no longer have DRIP turned on for the purpose of TLH’ing.
Timely post. Just opened taxable account at Vanguard so now I have to learn how to TLH. Thanks.
If we have another 2008 situation be ready to do this in a large way. Those carry forward losses are like the golden goose.
Hi, awesome tutorial. Just some questions, though: you mention that the wash sale rule works forwards and backwards. Say I made routine monthly purchases on 1/1, 2/1, and 3/1. If I have a TLH opportunity on 3/15, would I only be able to exchange the 1/1 and 2/1 lots?
Additionally, you and others mention doing a 3 fund TLH. Say I do VTIAX-VFWAX on 3/15, can I do VFWAX-VTMGX on 3/22?
Thanks!
I believe you have to sell all lots that fall within 30 days of the date of sale, this always confuses me so I look forward to other answers.
Not sure if you have to, but you usually want to so it doesn’t really matter.
You’ve got it except you should probably also sell the 3/1 lot. It’s not a wash if they’re the exact same shares.
So to confirm, on 3/15, I can sell the lot I bought 2 weeks earlier on 3/1, and reap the TLH?
In what instance does the wash sale “forward and backward” limit me?
I found this quote from the motley fool.
“According to the IRS, a wash sale occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a substantially identical stock or security or acquires a contract or option to do so. ”
To me, this implies that you can’t sell a stock until 30 days after you’ve owned it to prevent a wash sale as well. So back to the original question, I would conclude that selling the shares bought on 3/1 would make it a wash. Maybe I’m wrong….
Do short- and long-term losses beyond $3,000 both carry forward to future tax years? I’ve already harvested $3,500 in short-term losses and about $1,500 in long-term losses this year — I have another $1,000 or so short-term losses I could harvest now, or I could wait four months and let them “mature” into long-term losses. Is there any advantage/disadvantage one way or the other?
Thanks for the helpful post and comments (especially the tax-loss-harvesting partners, which is useful to have handy).
So do you have “automatically reinvest dividends” disabled on all your accounts? I find I have to plan pretty far ahead on my TLH to hit the window between dividend payouts, or else I need to disable those reinvestments on my retirement accounts (and on my wife’s 403b/457b).
I wanted to TLH VTIAX in late June, but the 6/21 dividend reinvestment would run me afoul of the wash sale rule – particularly bad to do when a Roth account triggers the wash sale.
I’m wondering if the money saved by being able to pull the trigger on TLH whenever you want overcomes the money lost by having dividends sit on the sideline.
Anyway, thanks for the tutorial – this article is going to get a ton of hits!
Cheers,
Mouse
I absolutely recommend turning off auto reinvest dividends off in taxable account, and if you share the same funds in a IRA/Roth IRA to turn them off their as well. That should help avoid wash sale rule. Just check every few months to sweep account and manually reinvest.
https://www.bogleheads.org/wiki/Approximating_total_international_stock_market
This always seemed too complicated when you get to a third international TLH partner. I Like the 80% developed market/20% emerging market combo. I’m on a third partner myself during that same time period with developed market index, I’ll add the EM index. Thanks!
how often do you all check your accounts for TLH opportunities? other than a downturn big enough to make the news, do you do this regularly?
I always avoided TLH ST losses, since I have no ST gains. Most of my life savings is in taxable due to limited options. Im now understanding to TLH ST losses too and they will just automatically offset remaining LT gains?
How do you view spending and taking money out of the market, to buy practice equipment vs a new car or trip (all items deductible)? Am I correct that buying a $200000 laser is distinguishable from buying a $200000 porsche, that is also used for business? To me the distinction is solely that a porsche has a low cost substitute, a laser may not. Being frugal, it is hard to switch gears from saving to spending, but is this even ‘spending’ in that sense when I expect to make money on the laser?
Awesome! Does TLH only work if you are not taking the standard deduction on your income taxes or does it work even if you are?
Thank yoU!
I also wonder what people’s “minimum” loss is for considering TLH. When the taxable account is in its early stages, do people think it’s worth it for a few hundred dollars of losses?
This has also made me think about converting most of my 401k to a target date fund to try to uncomplicated things and minimize what I need to follow to avoid wash sales.
Hello, I was wondering the same thing.
I have a loss right now of $500 and I’m going to pass on the opportunity to TLH unless I hear differently. It’s only saving me maybe $180 and its one more tax form I will have to follow up with my accountant on to make sure they are familiar with the form and filling it out correctly.
If I have a loss over $1000, I think then it will be worth my time. I also like being able to reinvest dividends and not have too many different Index funds purchased at once for simplicity.
I am also a very new investor with maybe $10,000 in my taxable account, all in Vanguard Total International Index Fund with most of my money going toward student loans so once I am putting closer to 10K per month into my taxable account, I think there will be many more opportunities for TLH to be worthwhile.
Thanks for the post. I just recently left my FA and now have to clean up all of the funds with high expense ratios that he had me in… I was searching for a post just like this and it ended up in my inbox so that was perfect timing. My question is related to this and wondering if you can assist. We currently own a rental house (bought in 2005 in the military and it has never recovered in value so we rent it out… didn’t make that mistake twice). If we sell the home at a loss from what we bought it, is that considered a capital loss? We’ve owned it since 2005 and we still don’t think we could sell it for the original purchase price but could likely get out of the mortgage without too much out of pocket. I ask because if we do that, is that a good time to perhaps sell off our funds in a taxable account and repurchase to get a step-up in basis since we are expecting a pretty significant loss as opposed to taking the $3000 per year for more years? Am I thinking about this correctly? Thoughts?
As a rental, yes. As an owner occupied home, no. I was able to eliminate over 40% of my loss on our accidental rental by converting it to a rental property for a few years. The tricky part becomes the valuation at the point you converted it to a rental property, so you might try to make that as favorable as possible to you.
Yes, I believe that real estate capital loss could be used to offset mutual fund gains.
Newbie to TLH here so forgive me for asking probably stupid questions.
1. I have VTIAX in both a Roth IRA account and a taxable account. If I TLH the VTIAX from the taxable account following the instructions above, I don’t need to do anything to the VTIAX in the Roth IRA as long as I don’t physically buy any new shares in the next 30 days, right? There are no distributions from a Roth IRA, at least that I can see when I look at it online.
2. I also have a TLH opportunity in my taxable account for VCITX which is the California long term tax exempt bond fund. I know that most people don’t have bonds in their taxable accounts but my taxable account is my emergency fund based on the betterment advice here (https://www.betterment.com/resources/safety-net-funds-why-traditional-advice-is-wrong/). However, there really isn’t any equivalent bond fund that I know of to exchange. Just leave it or exchange for a bond fund without state tax advantage and then exchange again in 31 days? My taxes are insane in California but the amount in this particular bond fund is only about $25,000.
Thank you in advance. I love this group. I have educated myself on finances post divorce and I have a financial plan in place, thanks in part to the advice given here.
I wanted to TLH a while back and was ready to do it, but then I read this excerpt from Boogleheads and it scared me off.
“Loss on mutual fund shares held 6 months or less. If you sell shares of a mutual fund at a loss, and those shares have been held for 6 months or less, then there are special rules that may alter the loss you claim. First, if those shares produced any tax-exempt interest, then the loss is reduced, dollar for dollar, by that interest. Second, if those shares were held while the fund distributed (long term) capital gains, then the loss is treated as a long term loss up to the dollar amount of the distribution those shares produced.[1][2]”
I was going to sell VTIAX at a loss. The portion about long term capital gains scared me away since I have had the fund <6 months. Can anyone explain this? Thanks.
Most Vanguard funds only distribute LTCGs in December, so that avoids a lot of that issue. And it’s such a minor amount. I would assume that the Vanguard brokerage would track that for you anyway and adjust the loss for it.
As far as the tax-exempt interest, you don’t usually have much of a loss in a muni bond fund, so not much of an issue.
Maybe a piece on TAX GAIN HARVESTING
https://www.madfientist.com/tax-gain-harvesting/
Unless WCI decides to quit medicine, sell his business, and deescalate his lifestyle quite a bit I don’t think he will have much interest in pursuing.
2nd request for it. I think I’ll hit it on the podcast.
I am glad I learned something new: “… ONLY the amount of your loss above and beyond your short-term capital gains and long-term capital gains can be applied to your ordinary income…. ”
I believe this needs to be corrected: “Now I’ve got over $15K in losses to use on my 2018 tax return, which I can really use given that we’re taking the standard deduction this year after bunching many of our standardized deductions last December”.
I don’t know why you think that needs to be corrected. I expect quite a bit of of distributed LTCGs this year I can use that $15K to offset. And if I don’t use it all up, I can carry it over.
Maybe I am mistaken, but I beleive it is impossible to bunch your standarized deductions. Did you not mean to say that you bunched your itemized deductions last December?
You’re right of course. Fixed. I bunched my ITEMIZED deductions.
Thanks for a very practical “how” on TLH. I don’t quite understand the “why” though from a birds-eye view. Isn’t it bad to buy high and then sell at a loss?
You’re not really selling. You’re exchanging. And you’re getting a break on your taxes for doing so. That’s the “why.” You’re losing nothing because you really aren’t selling, and you’re getting a break on your taxes.
Timely post, as I did my first TLH last week! We moved slowly into taxable investing by transferring a big chunk of our overly-large Ally savings account into Vanguard’s intermediate term muni bond fund last fall. When I finally started to investigate the specific lot unrealized loss/gain screen in June, I had a ~$1,200 loss on the initial purchase to work with.
I’m getting my feet wet TLH-ing slower moving bond funds before we add equities to our taxable investing.
We have dividends and new contributions go to our settlement fund. But I haven’t figured out the timing of investing the settlement fund to reduce the chance of being faced with a wash sale when there’s a TLH opportunity. For the particular one I did, I invested settlement fund money in the newly purchased fund along with the TLH exchange money. But, if I have no losses in either fund, leaving money in the settlement fund for months on end doesn’t seem like the best use of it either.
Excellent post. Thanks for sharing your knowledge WCI! Does anybody have any suggestions for partners for VBTLX? VGT?
I appreciate the information.
It’s rare to do much tax loss harvesting with bonds, but just about any Vanguard bond fund is fine. If you wanted to get exact, some combination of intermediate treasury and intermediate corporate probably.
The information tech ETF? Maybe QQQ?
Really excellent article – thank you for writing it. One thing to consider – showing the world your account balances may be tempting to some who don’t deserve to know (hackers). Just a thought.
Yes, I thought about that. So has Vanguard (who I spoke to earlier today to put even more fraud protections on my account after they read this post.) But if people haven’t figured out we’re wealthy they haven’t been reading this blog very long. It would actually be pretty pathetic if we weren’t wealthy given what we advocate and the amount we earn doing so.
https://www.whitecoatinvestor.com/state-of-the-blog-2018/
There are lots of financial bloggers out there giving net worth updates every month that no one blinks twice at, but somehow as that net worth grows things change, for better or for worse.
Watch your timing when you TLH. I have automatic dividend reinvestment and sold a small amount a few months ago and most of the loss was erased when the automatic reinvestment occurred due to the wash rule.
Is it still true that once you go average, you can’t go back? That is, once you use the average basis method for selling part of a position, you are stuck using average basis for that position, until you exit it (sell all shares) entirely?
Yes, I believe that is true.
Is there not a wash sale triggered on the $40K worth of VTIAX bought on 6/7/18? This was sold on 6/19 as part of the TLH, yet that seems to violate the wash sale rule: “The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a “substantially identical” stock or security”
That seems like a wash sale to me of those funds, even though you bought a diferent fund afterwards you violated the 30 days before with the purchase the week before. The other portion of VTIAX that was sold would not be in violation and you could harvest the loss from that
No, because the shares that were bought were then sold.
Thanks! I didn’t realize the wash sale would not be triggered if you sold off the stock recently purchased.
The difficult part I can imagine is having an S&P index fund in my 401k (which gets contributions twice a month), and having a similar S&P index in my taxable account. If there was a market dip to TLH on I guess I would need to change my 401k contributions for a few months so I could exchange the taxable index fund without triggering a wash sale. I wish they wouldn’t consider buys made in tax-advantaged accounts. Am I understanding that correctly?
Love the site!
Yes, technically you would. But the 401(k) doesn’t report to the IRS when you buy/sell so the likelihood of getting caught would be very, very low. Not that I recommend that, just pointing it out. Some people just use different funds in the 401(k)/taxable account to avoid that issue. Even reinvesting shares in a 401(k) would technically trigger it.
I just used this today and will save about 2000$ in taxes! Thanks for the awesome tutorial!