Tax loss harvesting: mutual fund cap gain distribution vs loss on individual stock

[Rambler]

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

 

[Sunset]

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 ?

 

[pb4uski]

+1

 

[Rambler]

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. That’s how they showed up on my Schwab history anyway, so pretty sure. It wouldn’t be much of an issue if it was a couple thousand buck total, but it’s 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 don’t want to be in, so if I can harvest some losses, that’s what I’d prefer to do.

 

[audreyh1]

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.

 

[Rambler]

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.

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, I’m going to sell small amounts each day for the next week or so. OTOH, I like what I read somewhere this week: “if you’ve already won the game, stop playing.” Maybe I’ll just put all the cash back into some funds...or most of it, and just a little dabble back into the micro.

 

[pb4uski]

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.

But you can offset them with ST capital losses if you have any in your portfolio.

 

[Rambler]

But you can offset them with ST capital losses if you have any in your portfolio.

Thx, don’t have any ST losses to harvest at the moment.

 

[kaneohe]

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.

 

[audreyh1]

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.

 

[N02L84ER]

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, I’m going to sell small amounts each day for the next week or so. OTOH, I like what I read somewhere this week: “if you’ve already won the game, stop playing.” Maybe I’ll 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.

 

[LOL!]

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.