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Best Index to Tax-Loss Harvest for 30 Days?
Old 12-04-2008, 02:26 PM   #1
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Best Index to Tax-Loss Harvest for 30 Days?

When I started my new business at the beginning of the year, I was forced to sell my ownership in the previous venture to my partners, as required by the ownership agreement. Fortunately, I recognized a sizable capital gain on the sale.

Unfortunately, I am now in a position to sell equities to cover up all of the capital gains from this sale with capital losses. In order to do this, I need to sell a sizable amount of one of my equity funds. Considering funds in which I have sufficient shares/losses to match my capital gains with capital losses, I have available a large cap US index, mid cap US index, small cap US index and overseas index (developed market).

I plan to sell one and transfer into the other, i.e. sell large cap and put money into mid cap, sell small cap and put into large cap, etc. I am doing this because I do not want to be out of the market for 31 days with what equities I have left. I believe at this point I am much more likely to miss a +10% day than a -10% day.

My accountant has given me an opinion in writing that large cap, mid cap, small cap and overseas index funds are sufficiently different that they will not violate the wash sale rules.

Which fund would you sell, and where would you put it? I am ok with selling one and spilling between the other two or three. In 31 days I will be putting the money back where it is now to maintain diversification.

I see no real advantage of one over the other, and will probably sell the one that is down the most (%) and split between the other three. Does anyone have an opinion one way or the other? Am I missing the obvious?

None of these funds have fees associated with redemption or purchase.
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Old 12-04-2008, 02:35 PM   #2
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Could you sell some or all of the small, mid, and large cap and buy the Vanguard total stock market fund or ETF (VTI).

Early in the summer I sold VTI and bought Vanguard small cap and Vanguard large cap to establish a tax loss position.

Recently I sold an S&P 500 index fund and bought VTI. All different funds but with similar performance characteristics. If you only have the 3 choices described above I'd sell the one with biggest $ losses. But I have no good argument for doing that.
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Old 12-04-2008, 02:41 PM   #3
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My inclination would be to sell the small-cap and/or mid cap and put the money into the large cap, on the expectation that the large caps will probably outperform in the initial stage of a turn around in the market. Should the market continue down, the large caps should be more defensive. Then after 30 days you can rebalance back to your current allocation, should you still want to.
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Old 12-04-2008, 04:12 PM   #4
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Normally I would move into a similar fund within the same asset category. The IRS rules are pretty loose about similar funds. Are you restricted to these funds (like within a 401k)? You could move to an active fund for a month if you don't want to risk being in a similar index fund. Otherwise good luck!
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Old 12-04-2008, 11:02 PM   #5
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Are you restricted to these funds (like within a 401k)?
No restrictions other than it has to be a Vanguard fund.
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Old 12-04-2008, 11:48 PM   #6
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You should sell ALL your funds that have losses in them. Your accountant is not on the ball if they did not tell you to sell ALL the funds. You can easily find replacement funds. List the ticker symbols here and I will give you replacement ticker symbols. Also expect to stay in the new funds forever if they go up in value.
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Old 12-05-2008, 12:25 PM   #7
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Recommend similar funds for:

VTI
EFA
FEZ
VB
VWO
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Old 12-05-2008, 12:36 PM   #8
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You should sell ALL your funds that have losses in them. Your accountant is not on the ball if they did not tell you to sell ALL the funds.
Not necessarily. It depends on the nature of the losses. I try to avoid offsetting LT gains with ST losses, since the LT gains receive favorable tax treatment.
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Old 12-05-2008, 02:05 PM   #9
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Originally Posted by CybrMike View Post
Recommend similar funds for:

VTI
EFA
FEZ
VB
VWO
VV (add some small cap VBR, IWM, ... if you like)
VEA
VGK
VBR or IWM or IWN or IJS
EEM

But if you are investing in ETFs and have an account at Vanguard, you should be very familiar with all of this. If you can find this forum and enter questions, then you can find: https://personal.vanguard.com/us/funds/etf/bytype and read. What gives?

The usual ETF caveats about trading volume, bid/ask spread and commissions apply.
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Old 12-05-2008, 11:05 PM   #10
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You should sell ALL your funds that have losses in them. Your accountant is not on the ball if they did not tell you to sell ALL the funds. You can easily find replacement funds. List the ticker symbols here and I will give you replacement ticker symbols. Also expect to stay in the new funds forever if they go up in value.
I assume that the logic here is that eventually I will have capital gains, and I can carry forward these losses forever until I need them? The problem with this is that I am resetting my basis to a low number, and will then pay the taxes later when I sell them. What am I missing?
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Old 12-06-2008, 08:33 AM   #11
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You can carry forward and offset $3000 of ordinary income each year (and maybe the $3000 limit will go up in the future). If you carry the losses forward, those losses can offset future cap gains (resulting from your lower basis). If the market stays down for several years, you can at least offset some of your income each year. I'm not sure how you can lose by locking in losses now -- as long as you stay invested.
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