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Tax Loss Harvesting / Ohio 529 Fund
Old 12-24-2014, 04:54 PM   #1
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Tax Loss Harvesting / Ohio 529 Fund

Hi, I see in Vanguard that I have $517 in dividend capital gains in my brokerage account from vanguard funds and a few stocks. Any recommendation son how to offset this and if I should?

I have VEMAX short term loss of $600 if I sold?
I have VTIAX short term loss of $252 if I sold?
I have S(Sprint) ST loss $13 and LT loss $487(Total $500) if sold?

I'm not sure what the difference is with short/long term losses when it comes to dividend capital gains?
1. Should I sell one over the other or sell less volatile options over ones that may go up or down and then plan to buy back next year?
2. Could/should I just harvest all losses to offset income and buy back low funds next year?
3. Any vanguard options recommended?
4. These tax losses/gains only matter for brokerage right? (not ira or roth or 529?)
4. ...and finally, would it make sense to buy many funds at different times throughout the year to have many cost basis to choose from at the end of year to increase the likelihood of losses to offset gains?(I guess this would be more short term / just use vanguard funds to avoid transaction costs?)

P.S. Quick unrelated 529 question: We would like to start two funds for baby and toddler and live in Ohio. Any recommendations? Vanguard? Ohio College Advantage?
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Old 12-24-2014, 05:46 PM   #2
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One can only sell at a loss in a taxable account in order to tax-loss harvest. There are exceptions for IRA and QTPs that are so difficult to meet that I cannot imagine that we need to talk about them.

Have you read about tax-loss harvesting in the bogleheads wiki: Tax loss harvesting - Bogleheads

You can sell all your losers and buy back similar, but not substantially identical funds in the same transaction called and exchange. For example, exchange your VTIAX into VFWAX.

The direct sold Ohio 529 is what you want. It uses Vanguard funds.
www.collegeadvantage.com
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Old 12-24-2014, 07:56 PM   #3
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If you sell shares at a loss in a taxable account, you are in danger of creating a "wash sale" situation if you have bought or do buy, in any account type, "substantially similar" shares within the previous or following 30 days around the sale for a loss. Similar is vague, but usually interpreted to mean the same fund/stock, or perhaps two funds that use the same index. If you automatically reinvested fund distributions and then tried to sell shares at a loss immediately afterwards then that is a wash sale. You would not be allowed to take that loss, but the cost basis attaches to the new shares, so you eventually do recover the disallowed loss. Unless the new shares are in a tax advantaged account (IRA, Roth, etc.), in which case the extra cost basis does you no good and you are screwed.


By the way, stocks have dividends. Funds have distributions of dividends and/or capital gains, passed through from the stocks that the fund holds or sells. There are no "dividend capital gains".


Depending on your tax bracket and the type of fund distributions you have, you may not owe any taxes on your distributions. "Qualified" dividends and long-term capital gains are taxed at special capital gains rates, 0% if all your income fits into the 15% tax bracket, or 15% of gains if you are above that. At 0% you have no need to sell anything for a loss. Non-qualified dividends and short-term capital gains are taxed as normal income, and it might be nice to avoid that. Vanguard should tell you what types of dividends and capital gains you have.


For $507, you may owe something like $76.05 if everything was taxed at 15%. Not something to go out of your way to avoid unless you are hitting the healthcare subsidy limit or a tax credit limit.
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Old 12-26-2014, 05:43 PM   #4
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I have owned the vanguard funds less than 6mo so it sounds like from reading I can't take those losses due to dividend rules?

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Old 12-26-2014, 06:04 PM   #5
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Im in 25% tax bracket so looks like I will have to pay 15% on qdi and 25% on non qualified. If I sell something at a loss will it apply to the 25% first or just work out that way since I'm in that bracket? Looks like I should look at some funds with 100% qualified?

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Old 12-26-2014, 07:10 PM   #6
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Originally Posted by columbus View Post
I have owned the vanguard funds less than 6mo so it sounds like from reading I can't take those losses due to dividend rules?

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I am unaware of whatever rule you are talking about. There is a 6-month rule for tax-loss harvesting a fund that pays tax-exempt dividends. VTIAX, VEMAX, and S are not such funds.
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Old 12-26-2014, 07:14 PM   #7
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Quote:
Originally Posted by columbus View Post
Im in 25% tax bracket so looks like I will have to pay 15% on qdi and 25% on non qualified. If I sell something at a loss will it apply to the 25% first or just work out that way since I'm in that bracket? Looks like I should look at some funds with 100% qualified?
A realized loss will first be used to offset realized gains, but not dividends. Then any net realized loss up to $3000 will be put on your tax return on page 1 of Form 1040 as a negative number to reduce your AGI, so it will not be applied to dividends per se at all. Any more than $3000 net loss will get carried over to next year. To you I think it will save you 25% on the dollar.

You can fill out a trial tax return to see how it works.
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Old 12-26-2014, 08:24 PM   #8
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Originally Posted by columbus View Post
I have owned the vanguard funds less than 6mo so it sounds like from reading I can't take those losses due to dividend rules?

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You can sell shares at any time. If you held the shares for less than one year before the sale then you will have a short-term gain or loss, taxable at regular income rates. Longer than that and you'll have a long-term gain or loss, taxable at the special 15% capital gains rate. If you sell at a loss, long-term losses are applied to long-term gains first, and short-term losses against short-term gains. If you have some losses left over, they can be applied against the other type of capital gain. If you still have a remaining loss you can apply up to $3000 against regular income. If you still have losses remaining after that, they can be applied to next year's taxes.

Qualified dividends I believe are somewhat personalized. You have to meet certain holding periods to qualify. I assume that means both you and the fund would have to meet those requirements. So you may have more qualified dividends and less non-qualified dividends next year, just from your longer holding period..
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