I sold everything

[2B]

Well, not really. I sold my IWD and SPY that were in my taxable account. I immediately bought approximately the same dollar amount of VTI. I may or may not undo this in late December. My tax deferred accounts are untouched.

I am now the proud owner of 20 years of $3,000 deductions for Sch D capital losses. The preferred alternative is to pay for capital gains in my VTI as I sell it off in retirement. Either way I'm going to relive the joys of 2008 for a long time to come.

I still have my 300 shares of BAC. It used to have over a 300% profit but it's now down to 16% and the day's not over yet.

 

[CuppaJoe]

I want a real tax cut! Allow a $10,000+ loss on Sch. D. It's time to take to the streets! Also may be time to cut off the caffeine today.

 

[Maurice]

Funny, I did that yesterday - sold my iShares ETFs and rebought the Vanguard equivalents. IWD, IWM, IWN, and IVV all gone now.


The silver lining of this downturn is it gives opportunities for portfolio cleanup.

 

[ERD50]

Just realize this will *increase* your taxes in future years. Your new holdings take on the lower cost basis, so therefore higher profits when sold. I would do this if I had higher-than-average gains to offset, but I don't

It may still be worth it, but since we can never know what future tax rates will be....

-ERD50

 

[ERD50]

I want a real tax cut! Allow a $10,000+ loss on Sch. D. It's time to take to the streets! Also may be time to cut off the caffeine today.

One thing that aggravates me more than our overly-complex tax code, is the fact that they seldom index this stuff to inflation.

What's the point of going to all this rigamarole (hey! spell checker says that *is* a word! I didn't know that!) and then not take the simple/logical step of adding an inflation adjustment to it?

Are they idiots? <<<< Rhetorical question alert!!!! <<<<

-ERD50

 

[lazygood4nothinbum]

welcome to my world, only i've got about 66 years worth of cap loss write-offs. now if only i could carry that forward into my next life. the only comfort is that with what little i've left, that $3k/yr is gonna be sweet.

 

[2B]

I thing I hadn't counted on. Looking at my brokerage account screen is so much nicer with everything green. I hope it stays that way.

I thing VTI is better than sitting on IWD and SPY anyway. I might go back but I'll have a month to reflect on it. The disadvantage of VTI is a slightly lower dividend yield but it isn't as concentrated as the other two.

I just wish I could do something worthwhile in my rollover IRA. I am planning on moving a limited amount over to my Roth next year. To stay under $100K I'm putting a bunch into my SERP with the 401k there to make sure I'm eligable. I don't plan on making the move until late in 2009.

I'm too heavily concentrated in my IRA. Higher income tax rates will hit me hard even in retirement. If there is a VAT added to our taxes, it will hit the same either way.

 

[DblDoc]

Well, not really. I sold my IWD and SPY that were in my taxable account. I immediately bought approximately the same dollar amount of VTI. I may or may not undo this in late December. My tax deferred accounts are untouched.

I am now the proud owner of 20 years of $3,000 deductions for Sch D capital losses. The preferred alternative is to pay for capital gains in my VTI as I sell it off in retirement. Either way I'm going to relive the joys of 2008 for a long time to come.

I still have my 300 shares of BAC. It used to have over a 300% profit but it's now down to 16% and the day's not over yet.

I did something similar with VEA + VWO into VEU yesterday.

DD

 

[Nords]

I am now the proud owner of 20 years of $3,000 deductions for Sch D capital losses. The preferred alternative is to pay for capital gains in my VTI as I sell it off in retirement. Either way I'm going to relive the joys of 2008 for a long time to come.

Eh, it'll probably be all used up in just 10-12 years after all the righteous cap gains we'll be seeing next decade...

 

[JPatrick]

While you created a loss for sure, it sounds as if you may still have taxes to pay on your new acquisition this year. In other words, if your new fund isn't past it's ex date, you may have bought yourself a brand new 2008 taxable distribution.
What am I missing?

 

[2B]

While you created a loss for sure, it sounds as if you may still have taxes to pay on your new acquisition this year. In other words, if your new fund isn't past it's ex date, you may have bought yourself a brand new 2008 taxable distribution.
What am I missing?

You're not missing anything except that "size matters." VTI is an index fund that has also had the crap kicked out of it this year. I suspect any capital gains dividends will be very small. Since I got rid of SPY and IWD, I'm sure I didn't move into a high tax situation resulting from any distributions.

The goal is to get a couple of years of $3000 deductions which lowers my taxes by $750 every year. The only cost was the approx $20 in transaction costs. Assuming the market ever comes back, I'll still have losses to offset any gains I get for a long time.

 

[LOL!]

While you created a loss for sure, it sounds as if you may still have taxes to pay on your new acquisition this year. In other words, if your new fund isn't past it's ex date, you may have bought yourself a brand new 2008 taxable distribution.
What am I missing?

You are missing that all these ETFs pay about a 2% or so dividend. You were gonna pay taxes on a distribution whether you exchanged into other ETFs or not. The ETFs are not giving out cap gains distributions.

As for the future, with all the carryover capital losses, we won't be paying any taxes in our early retirement as we sell equities to fund our expenses.

 

[Disappointed]

The deduction of $3,000 becomes less and less valuable each year in the future (assuming inflation - not deflation).

Also, I booked some gain in 2000, paid taxes on all gains at year end, then lost my butt in 2001-2003 but could only deduct $3,000/yr going forward, can't go back and offset those gains that I paid taxed on the previous year? Somebody said that for businesses, you can go back two years.

For those in the -$1,000,000 club, it would take more than 30 years to deduct the losses, hopefully we will have some gains along the way to offset some of the losses.

Life is not fair.

mP

 

[Hamlet]

I'm newly married. Does the $3000 capital loss limit get doubled for married couples, or is it still just 3k?

 

[ziggy29]

I'm newly married. Does the $3000 capital loss limit get doubled for married couples, or is it still just 3k?

Still $3,000. Filing status has no bearing on this particular tax law (except that the limit for married filing separate is half of this -- $1500).

 

[lazygood4nothinbum]

The deduction of $3,000 becomes less and less valuable each year in the future (assuming inflation - not deflation). ...hopefully we will have some gains along the way to offset some of the losses.

my assumption (perhaps wrong) is that the deduction will be adjusted over my lifetime in accordance with inflation. (i can hope, can't i, since i've a lifetime worth of losses.)

losses carried forward can offset other income even in years without long or even short term cap gains.

http://www.irs.gov/newsroom/article/0,,id=103509,00.html

Generally, realized capital losses are first offset against realized capital gains. Any excess losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately) on line 13 of Form 1040.

 

[lawman]

I don't understand the point of doing this..If tax rates go up in the future as I believe they will it seems to me like I'm better off to wait for all my losers to come back than to sell now, buy more stocks and then sell later. Also, if I sell now I have additional comissions..I can see some short term advantage or an advantage for one who will be in lower tax bracket in the future or in case the market doesn't come back in my lifetime but beyond that it just doesn't make sense to me..Am I missing something?

 

[kumquat]

For the Canadians here it is a good strategy. CL's are deductible immediately and carried forward at current value.

 

[Spanky]

I am contemplating on consolidating 6 funds into one VT fund.

 

[DblDoc]

I don't understand the point of doing this..If tax rates go up in the future as I believe they will it seems to me like I'm better off to wait for all my losers to come back than to sell now, buy more stocks and then sell later. Also, if I sell now I have additional comissions..I can see some short term advantage or an advantage for one who will be in lower tax bracket in the future or in case the market doesn't come back in my lifetime but beyond that it just doesn't make sense to me..Am I missing something?

This will hopefully clarify it: Tax Loss Harvesting - Bogleheads

DD

 

[lawman]

This will hopefully clarify it: Tax Loss Harvesting - Bogleheads

DD

Thanks for the link...I saved it..It does help some but the example does not take into effect the costs of commissions. If you subtract the cost of commissons from what is sold and reinvested, assume a likely higher tax rate than 15%, and consider the commissions of purchases made with the money saved from income taxes the numbers would be much different, especially in my case where I have many small stock holdings that would need to be sold.

 

[JPatrick]

You are missing that all these ETFs pay about a 2% or so dividend. You were gonna pay taxes on a distribution whether you exchanged into other ETFs or not. The ETFs are not giving out cap gains distributions.

As for the future, with all the carryover capital losses, we won't be paying any taxes in our early retirement as we sell equities to fund our expenses.

Yep, I overlooked the ETF angle as I was thinking about a tax loss/reinvest strategy for some of my mutual funds..A bit different-same concept.

 

[2B]

Thanks for the link...I saved it..It does help some but the example does not take into effect the costs of commissions. If you subtract the cost of commissons from what is sold and reinvested, assume a likely higher tax rate than 15%, and consider the commissions of purchases made with the money saved from income taxes the numbers would be much different, especially in my case where I have many small stock holdings that would need to be sold.

My 3 trades to do the switch cost $20. That is lost in the fog of the trade. I actually did a little day trading when I did it. The market was falling when I sold the SPY and IWD. When those sales registered, I bought the VTI for about 10 cents/share under what it was when I started selling.

 

[DblDoc]

Thanks for the link...I saved it..It does help some but the example does not take into effect the costs of commissions. If you subtract the cost of commissons from what is sold and reinvested, assume a likely higher tax rate than 15%, and consider the commissions of purchases made with the money saved from income taxes the numbers would be much different, especially in my case where I have many small stock holdings that would need to be sold.

You do have to take trading costs into consideration. There was a poll over at Bogleheads where I think that most were not locking in anything less then about $500 worth so the trading costs become minimal. Your tax bracket also makes a big difference...

DD