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Tax loss harvesting: mutual fund cap gain distribution vs loss on individual stock
Old 12-13-2017, 02:44 PM   #1
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Tax loss harvesting: mutual fund cap gain distribution vs loss on individual stock

Hey folks, I should know the answer to this question, but I don’t so here goes:

I have had some pretty big LT cap gain distributions from some mutual funds this year. I also have a couple of individual stocks that have substantial unrecognized losses. I’d like to sell some of these individual stocks to harvest the capital loss, against the capital gain distributions from the mutual funds. I know that I can sell an individual stock with LT cap gains and offset those gains by selling an individual stock with LT cap losses. But what I don’t know is if selling an individual stock with LT cap losses works against mutual fund cap gain distributions.

Any advice? I called my tax advisor...out of the office until the new year...just when I need her the most...:-(

R
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Old 12-13-2017, 02:52 PM   #2
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You have a pretty smart tax advisor..

The answer is YES. (at least I believe it is).
The catch is are you sure your MF is going to declare a capital gain ?
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Old 12-13-2017, 03:00 PM   #3
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Old 12-13-2017, 03:37 PM   #4
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You have a pretty smart tax advisor..

The answer is YES. (at least I believe it is).
The catch is are you sure your MF is going to declare a capital gain ?
I received LT and ST cap gain distributions from two funds last week, and another fund yesterday. Thatís how they showed up on my Schwab history anyway, so pretty sure. It wouldnít be much of an issue if it was a couple thousand buck total, but itís over $40k in LT cap gains, and I have 5 more funds that will probably declare some as well. This would put me in a tax bracket I donít want to be in, so if I can harvest some losses, thatís what Iíd prefer to do.
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Old 12-13-2017, 04:01 PM   #5
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Originally Posted by Rambler View Post
Hey folks, I should know the answer to this question, but I don’t so here goes:

I have had some pretty big LT cap gain distributions from some mutual funds this year. I also have a couple of individual stocks that have substantial unrecognized losses. I’d like to sell some of these individual stocks to harvest the capital loss, against the capital gain distributions from the mutual funds. I know that I can sell an individual stock with LT cap gains and offset those gains by selling an individual stock with LT cap losses. But what I don’t know is if selling an individual stock with LT cap losses works against mutual fund cap gain distributions.

Any advice? I called my tax advisor...out of the office until the new year...just when I need her the most...:-(

R
Yes, realizing LT cap losses will count against mutual fund LT cap gains distributions on Schedule D.

Unfortunately ST cap gains distributions from mutual funds are treated as ordinary income and you can’t offset them.
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Old 12-13-2017, 04:44 PM   #6
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Yes, realizing LT cap losses will count against mutual fund LT cap gains distributions on Schedule D.

Unfortunately ST cap gains distributions from mutual funds are treated as ordinary income and you canít offset them.
Thanks Audrey. The ST gains are pretty small compared to the LT, and I was not expecting to be able to offset them, but was hopeful on the LT. The main LT loss stock I want to sell is a micro cap, still has lots of potential and I hope to reinvest in 31+ days after my last sale. Since it is a micro, Iím going to sell small amounts each day for the next week or so. OTOH, I like what I read somewhere this week: ďif youíve already won the game, stop playing.Ē Maybe Iíll just put all the cash back into some funds...or most of it, and just a little dabble back into the micro.
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Old 12-13-2017, 08:20 PM   #7
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Yes, realizing LT cap losses will count against mutual fund LT cap gains distributions on Schedule D.

Unfortunately ST cap gains distributions from mutual funds are treated as ordinary income and you canít offset them.
But you can offset them with ST capital losses if you have any in your portfolio.
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Old 12-13-2017, 08:27 PM   #8
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But you can offset them with ST capital losses if you have any in your portfolio.
Thx, donít have any ST losses to harvest at the moment.
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Old 12-13-2017, 08:39 PM   #9
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But you can offset them with ST capital losses if you have any in your portfolio.
not sure what you are offsetting w/ STCL but STCG distributions are taxed as non-qualified dividends (ord. inc) and "real" STCL offset the LTCG distributions but not the STCG distributions.
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Old 12-13-2017, 08:50 PM   #10
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But you can offset them with ST capital losses if you have any in your portfolio.
Offset what with ST capital losses?

You can't offset ST cap gains distributions from mutual funds with realized ST capital losses. It's one of those annoying quirks about mutual funds.

You can offset LT cap gains distributions with ST capital losses, and up to $3000 against ordinary income if you have more losses than LT cap gains distributions.
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Old 12-14-2017, 11:51 AM   #11
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Thanks Audrey. The ST gains are pretty small compared to the LT, and I was not expecting to be able to offset them, but was hopeful on the LT. The main LT loss stock I want to sell is a micro cap, still has lots of potential and I hope to reinvest in 31+ days after my last sale. Since it is a micro, Iím going to sell small amounts each day for the next week or so. OTOH, I like what I read somewhere this week: ďif youíve already won the game, stop playing.Ē Maybe Iíll just put all the cash back into some funds...or most of it, and just a little dabble back into the micro.
Remember not to repurchase the micro for 30 days or you will hit the Wash rules.
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Old 12-14-2017, 12:08 PM   #12
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Selling losers every year is a great thing to do in order to avoid the behavioral finance trap of loss aversion. It also means that you start every year with nothing in the red.

Anyways, ST cap gains distributions from funds is counted as non-qualified dividend income and are thus only offset by excess net capital losses up to -$3,000 (as all income is). They do NOT appear on Schedule D, but do appear on Schedule B.
Long-term capital gains from a fund end up on Schedule D Line 13 and thus are offset to the full extent of capital losses that you have.
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