Harvesting loss for tax purposes

[lawman]

I have a mutual fund (VFIDX) which I am showing a loss in. Seems like I should sell it and buy it back 31 days later. If I do not want to wait 31 days I would like to know what ETF is available that closely matches it in risk and reward. I think it currently yields around 2.3% .....This is a fund I've owned for 15 years or more. All comments are appreciated as I really am ignorant about this stuff..

 

[SoReadyToRetire]

May I ask this--are you using the 31 days so that you don't get stuck with a wash sale?

I made that mistake this year; so mad at myself! Forgot about wash sales when I bought similar stocks within 30 days of selling others at a loss. Ended up writing big checks to The Man because of it.

 

[lawman]

May I ask this--are you using the 31 days so that you don't get stuck with a wash sale?

I made that mistake this year; so mad at myself! Forgot about wash sales when I bought similar stocks within 30 days of selling others at a loss. Ended up writing big checks to The Man because of it.

Yes I want to avoid that mistake..

 

[Montecfo]

I have a mutual fund (VFIDX) which I am showing a loss in. Seems like I should sell it and buy it back 31 days later. If I do not want to wait 31 days I would like to know what ETF is available that closely matches it in risk and reward. I think it currently yields around 2.3% .....This is a fund I've owned for 15 years or more. All comments are appreciated as I really am ignorant about this stuff..

Well you can double up and then sell the loss shares 31 days later. This gives you double exposure for a month.

Or you can find a similar fund or ETF and reinvest into that.

You will need to do some research at morningstar or elsewhere to find a comparable fund. If you Google "funds similar to VFIDX" that will probably generate ideas for further research.

Another fund will never be considered "substantially identical" for this purpose so no risk of it triggering wash sale. They are allowed to be similar with no issue.

Good luck.

 

[pb4uski]

I have a mutual fund (VFIDX) which I am showing a loss in. Seems like I should sell it and buy it back 31 days later. If I do not want to wait 31 days I would like to know what ETF is available that closely matches it in risk and reward. I think it currently yields around 2.3% .....This is a fund I've owned for 15 years or more. All comments are appreciated as I really am ignorant about this stuff..

Call Vanguard. Or puruse this link. https://etfdb.com/mutualfund/VFIDX/

 

[ducky911]

Wash sale defined
What Is the Wash Sale Rule? The wash sale rule prohibits an investor from taking a tax deduction if they sell an investment at a loss and repurchase the same investment, or a substantially identical one, within 30 days before or after the sale

I would say buy a similar but not "substantially identical" one.

 

[captain3d]

A loss after 15 years?

 

[lawman]

A loss after 15 years?

It's very confusing. I made money that was reinvested at different share prices. I paid taxes on the dividends each year.. The fund is much larger than it was 15 years ago but because I paid taxes along the way my loss is due to lower share price..I really can't explain it but my total return was around 4 -5 % per year..

 

[lawman]

Would VCIT be a good substitute for VFIDX?

 

[Graybeard]

Wash sale defined
What Is the Wash Sale Rule? The wash sale rule prohibits an investor from taking a tax deduction if they sell an investment at a loss and repurchase the same investment, or a substantially identical one, within 30 days before or after the sale

I would say buy a similar but not "substantially identical" one.

I am glad you pointed that out for the OP. I thought, until I learned in another thread, that the Wash Sale rule is 30 days before the sale, the day of the sale and 30 days after the sale so it is really a 61 day timeframe.

Correct me if I am wrong but if the OP was reinvesting the bond fund dividends on a monthly basis then he needs to stop and has to wait for 61 days. I always reinvested the monthly dividend and didn't understand how this works. I just thought I was good as long as I waited 30 days after the sale to buy the fund again but never considered reinvesting the dividends was buying the fund.

 

[Phroig]

VCIT or BND if you want an index; FBND or BOND, which are actively managed would also work. You could consider waiting out the month (or a bit longer) in a money market fund. See all the threads on bond funds.

 

[SecondCor521]

I am glad you pointed that out for the OP. I thought, until I learned in another thread, that the Wash Sale rule is 30 days before the sale, the day of the sale and 30 days after the sale so it is really a 61 day timeframe.

Correct me if I am wrong but if the OP was reinvesting the bond fund dividends on a monthly basis then he needs to stop and has to wait for 61 days. I always reinvested the monthly dividend and didn't understand how this works. I just thought I was good as long as I waited 30 days after the sale to buy the fund again but never considered reinvesting the dividends was buying the fund.

Well, OP could stop reinvesting dividends today, sell in 31 days, then re-buy 31 days after that, so yeah, 61 or 62 days total.

If OP did not do so and ended up with a dividend-related wash sale, it would only be on the number of shares purchased during the wash sale period (so, just the dividends in the prior month-ish), not the entire position. If it's a bond fund paying a few to several percent annually on a monthly basis, the wash sale disallowed would be a very small proportion of the overall sale.

And the loss isn't actually disallowed. It gets added to the basis of the replacement shares. Which, if he sells his entire position, OP would have sold those too. So it may not end up being a wash sale at all. I'd go read the IRS pub on wash sales carefully to double check.

OP would have to separate out the short term capital gain/loss from the long term capital gain/loss on schedule D, but the broker should provide that info.

 

[Badger]

isn't there a limit as to how much you can use a loss for taxes? I thought it used to be $3k/yr and you could carry over another $3k for the next year. Is that a different issue?


Cheers!

 

[SecondCor521]

isn't there a limit as to how much you can use a loss for taxes? I thought it used to be $3k/yr and you could carry over another $3k for the next year. Is that a different issue?


Cheers!

Losses can offset gains to an unlimited degree. So one can sell stock at a $1M gain and another stock at a $1M loss in the same tax year and have a net capital gain of $0.

After all gains have been offset, if there are additional capital losses, then those can offset ordinary income (like from a job) up to $3K per tax year. Any unused losses get carried forward to future tax years, where they can either offset cap gains, or ordinary income $3K per year until used up.

Unused cap losses go away at death.

 

[RunningBum]

isn't there a limit as to how much you can use a loss for taxes? I thought it used to be $3k/yr and you could carry over another $3k for the next year. Is that a different issue?

You are unlimited as to how much gains you can offset. Beyond that is the $3K to offset other income, and the rest carries over. That yearly $3K limit offset has been very handy, kept me from going over the ACA cliff one year. Note that you can't choose when to apply that $3K. You have to take it each year as long as you have a loss whether you want to or not.

 

[lawman]

VCIT or BND if you want an index; FBND or BOND, which are actively managed would also work. You could consider waiting out the month (or a bit longer) in a money market fund. See all the threads on bond funds.

okay thanks...I think I have it down to either VCIT, BND, or SCHI..Of those three any thoughts or considerations? Thanks!

 

[Montecfo]

okay thanks...I think I have it down to either VCIT, BND, or SCHI..Of those three any thoughts or considerations? Thanks!

I would not rush to buy something like BND with an effective duration north of 6 years. I would stick with MM, Tbills of bank loans given the current expectation of 7 Fed rate increases this year.

Did not check the duration of your other choices but duration is not yout friend right now.

 

[lawman]

I would not rush to buy something like BND with an effective duration north of 6 years. I would stick with MM, Tbills of bank loans given the current expectation of 7 Fed rate increases this year.

Did not check the duration of your other choices but duration is not yout friend right now.

Don't you think rate increases are already priced in?