Anyone considering tax-loss selling?

[ERD50]

Since most people here use funds or ETFs, I can't imagine why they wouldn't want to realize capital losses by making a same day switch from one vehicle in the same asset class to another; if they have losses to realize, and if their tax position would benefit from the losses.

It's a long term interest free loan from the govt that may never have to be repaid.

Ha

What if your marginal tax rate is 15% this year, but 25% when you sell the fund you traded into?

-ERD50

 

[ziggy29]

I would if I could, but almost all of my investments are in 401Ks and IRAs. There's really no tax-loss harvesting to be done -- at least not enough to make it worthwhile.

 

[haha]

What if your marginal tax rate is 15% this year, but 25% when you sell the fund you traded into?

-ERD50

Then you fail the tests I mention.

But mine will be 28%, and I hope less in years to come. Also, don't forget, many securities will never be sold in a taxable manner.

Ha

 

[kaneohe]

My alternate view on tax-loss selling:

Remember, if you do a kind of 'trade' to a similar (but not identical) investment, that new investment now has the low cost basis. So yes, you can harvest the tax loss for this year, but the flip side is, you created a larger profit in that replacement investment.

Now that might be fine, especially if you had some other big gains that you sold this year (what are the odds of that?). But think about that increased tax down the road.

I expect taxes to go higher in the future. Do I *really* want to push gains into the future? Maybe, maybe not - I think it's worth thinking about. There is no free lunch with this, just delaying the bill a while. That delay may come at a price.

-ERD50

Not disagreeing at all w/ your points. However, depending on if/when taxes go higher in the future, there may be time value of the losses harvested today. Also the free lunch could be if you die before selling and your heirs get a stepup in basis assuming no major change in tax laws.

 

[RustyShackleford]

I expect taxes to go higher in the future. Do I *really* want to push gains into the future? Maybe, maybe not - I think it's worth thinking about. There is no free lunch with this, just delaying the bill a while. That delay may come at a price.

-ERD50

Yes, but remember, that increase in the gain (due to the reduction in
basis) remains fixed in time - it does not grow with the asset. So if
you harvested $10K in losses this year, that only adds $10K to your
gain down the road (duh). So let's say longterm-capital gains taxes
actually double to 30% by the time you take the gain. Even so, if
you take the gain let's say 20 years from now, the rule-of-72 says
you only needed to average a 3.6% nominal return on that money
(the money you didn't pay Uncle this year) to break even. (And I'd
say the future 30% LTCG rate an 3.6% annualized return are both
pretty pessimistic assumptions). Anyhow, that's how I think about
it; make sense to anyone else ?