Sold Bond Funds at a loss of $ 9000, what now ?

[rkser]

I sold some Bond Funds in Taxable accounts & have a Capital Loss of around $9000 so far.

How can I Tax Loss harvest, please help me with what are my options.

Can I 1)Sell VTI with a gain of $3k &
2)Take $3k against ordinary income &
3) Forward $3k of loss against next year taxes. or
4) Buy similar but not substantially identical Bond Funds/ETF

I am uncertain of my understanding of Tax Loss Harvest rules, What else can I do ?

Thankyou in advance for your help

 

[SecondCor521]

As long as you don't buy any of the Bond Funds in any account you or your spouse have, including taxable and retirement plans such as IRAs within the ~60 days centered on your sale dates, then

You may do #1 if you wish, which will offset part of the $9K realized loss and leave you with a net $6K loss.

You may do #2 as long as you have no other gains that would otherwise be offset by the $6K loss.

You "must" do #3, assuming you live long enough to file taxes next year.

You may do #4 if you wish.

See here for some IRS instructions about wash sales: https://www.irs.gov/publications/p550#en_US_2022_publink100010601

 

[COcheesehead]

Any losses will go against capital gains in a taxable account. So if you have other capital gains at year end due to distributions, that may eat some of the loss as well. Anything left over up to $3000 can be applied to current income. Anything still left over will carry forward.

 

[Phroig]

You harvested the tax loss when you sold the bond fund. Are your VTI gains short or long term? What’s your marginal tax rate? Do you want to maintain your previous allocation to fixed income?

 

[rkser]

You harvested the tax loss when you sold the bond fund. Are your VTI gains short or long term? What’s your marginal tax rate? Do you want to maintain your previous allocation to fixed income?

All VTI gains are long Term,
we are in 24% Marginal Tax Rate thanks to Roth Conversions, MFJ,
we are 67 & 62 yrs old, I am on Medicare & pay the 3rd rung IRMAA penalty again thanks to Roth conversions,
0 earned income, we are retired, income from long term dividends & DW started SS, & selling long term gains of VTI for living expenses.
Asset Allocation is 70/30, YES, want to maintain the same AA or may go up to 75/25.
Most of 30% Bonds are now in Money Markets, thanks to the increasing Fed Rates, we sold the short term bond VBIRX & national Muni Bond VWIUX, had to have Bonds in taxable to get up to 30% of Bonds in AA. ALL IRAs were BND, again now in Money Markets now.

I hope that will give an idea of our financial picture, will be happy to answer questions, in all now VTI, VXUS & Money Markets now, that is it. guess, I cannot simplify any more. DIYer with a Mid to reaching higher 7 figure Portfolio.

What else can I do to Tax Loss Harvest of $9000 this year ?

I am thinking of getting $9k gains from selling VTI & buying them back again to raise the cost basis, what do you think ?

Again thanks for your feedback, have learnt a lot from you guys

 

[SecondCor521]

What else can I do to Tax Loss Harvest of $9000 this year ?

The first thing to do is make sure you do not buy any of the stuff you sold in the ~60 day window surrounding the sale dates. Buying any of those shares will create a wash sale and will either defer or disallow your tax loss.

Other than that, you really have about two options:

1. Sell anything that you have unrealized capital gains on sometime this year. The gains will first go to offset your existing loss. If you do too much, the excess will be taxed at your capital gains rate (which is probably 15% long term, 24% short term).

2. Leave the loss in place, use $3K of it this year to offset ordinary income, and carry forward the rest to future years.

I am thinking of getting $9k gains from selling VTI & buying them back again to raise the cost basis, what do you think ?

You can, and that will work. This is choice #1 above. It would have the minor benefit of getting rid of the carryforward, and it would reset your cost basis.

Drawbacks are that you're saving yourself 15% (probably) by avoiding capital gains on the basis increase, but you could have used it to offset 24% ordinary income.

The carryforward has the drawback of only being able to use $3K per year, and it extinguishes when you pass away. So if you're impatient to use the loss or are in poor health, or are disorganized enough to forget about the carryforward, those might impact your decision.

 

[marko]

As long as you don't buy any of the Bond Funds in any account you or your spouse have, including taxable and retirement plans such as IRAs within the ~60 days centered on your sale dates, then

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I thought it was 30 days (?)

 

[Phroig]

If you have anything with short-term gains, take those. Otherwise, just use the losses to offset $3K of other income for the next three years. If you realize long-term gains, you're basically giving up the 15% tax rate on those gains.

 

[Phroig]

I thought it was 30 days (?)

30 days before + 30 days after, so 60.

 

[marko]

30 days before + 30 days after, so 60.

So if you didn't buy anything before and only sold, the 30 days from sell date applies, correct?

 

[SecondCor521]

So if you didn't buy anything before and only sold, the 30 days from sell date applies, correct?

Correct.

 

[rkser]

The first thing to do is make sure you do not buy any of the stuff you sold in the ~60 day window surrounding the sale dates. Buying any of those shares will create a wash sale and will either defer or disallow your tax loss.

- *** Yes, I will keep that in mind

Other than that, you really have about two options:

1. Sell anything that you have unrealized capital gains on sometime this year. The gains will first go to offset your existing loss. If you do too much, the excess will be taxed at your capital gains rate (which is probably 15% long term, 24% short term).

- *** I will sell just enough of VTI to take $6k of gain

2. Leave the loss in place, use $3K of it this year to offset ordinary income, and carry forward the rest to future years.

- *** I will leave $3k of remaining Loss, to offset $3k of Ordinary Income


You can, and that will work. This is choice #1 above. It would have the minor benefit of getting rid of the carryforward, and it would reset your cost basis.

Drawbacks are that you're saving yourself 15% (probably) by avoiding capital gains on the basis increase, but you could have used it to offset 24% ordinary income.

The carryforward has the drawback of only being able to use $3K per year, and it extinguishes when you pass away. So if you're impatient to use the loss or are in poor health, or are disorganized enough to forget about the carryforward, those might impact your decision.

I would use all that Loss to harvest this year, & not postpone any for next year.

- *** Thankyou for the Clarity your post provided to me, I appreciate it

 

[pb4uski]

I sold some Bond Funds in Taxable accounts & have a Capital Loss of around $9000 so far.

How can I Tax Loss harvest, please help me with what are my options.

Can I 1)Sell VTI with a gain of $3k &
2)Take $3k against ordinary income &
3) Forward $3k of loss against next year taxes. or
4) Buy similar but not substantially identical Bond Funds/ETF

I am uncertain of my understanding of Tax Loss Harvest rules, What else can I do ?

Thankyou in advance for your help

Any of those will work. All else being equal you could take an additional $3k of Roth conversion that would be offset dollar-for-dollar by $3k allowed against ordinary income.

Or you could sell anything else in taxable accounts that have a $9k gain to utilize the loss.

Or a combination, use $6k to increase your basis in your taxable account and $3k against ordinary income.

Or $3k a year against ordinary income for 2023, 2024 and 2025.

The world is your oyster ad you have lots of options.

I assume that this isn't big money in the whole scheme of thngs so simple will probably be best.

 

[rkser]

Thankyou everyone for your help & guidance.

 

[TheWizard]

That tax loss is more valuable when used to offset ordinary income taxed at your marginal 24% rate. So the $9000 loss is enough to cover the next three years.

I would not normally use a capital loss to offset otherwise unrealized capital gains in your taxable account.
An exception would be if your were planning to take $50,000 from your taxable account to buy a new car later in the year and the additional CG income would push you into the next higher IRMAA tier.
You'd have to run the numbers.

Otherwise, just leave unrealized CGs alone. They get taxed at the preferential 15% rate if you do need the money at some point. Otherwise, your heirs get stepped up basis and the CGs aren't taxed at all...

 

[tizod]

Be careful on wash dates - I do 35-40 days as a rule. That covers clearing dates etc.. Also, I see no reason to time the market to a day or two so I like the safety.
Also realize you cannot do like sales, and funds etc. can be hard to distinguish (I dont trade them so others can mention that). I am not sure if they classify leaving one Blue cap fund for another is a "like" sale. But I have traded by leaving, say HD and picking up WMT, then going back 40 days later to HD, if I wanted.

 

[sengsational]

I've been "enjoying" a carry-forward loss for a decade. What's there to do? You've already ripped off the band-aid, now you just enjoy the 3K per year.

 

[Closet_Gamer]

I've been "enjoying" a carry-forward loss for a decade. What's there to do? You've already ripped off the band-aid, now you just enjoy the 3K per year.

You can also offset future gain with these, correct?

I'm holding piles of tax losses from the big Covid drop and some other swoons. Figure I will use these when I start pulling from the portfolio for retirement.

 

[COcheesehead]

You can also offset future gain with these, correct?

I'm holding piles of tax losses from the big Covid drop and some other swoons. Figure I will use these when I start pulling from the portfolio for retirement.

Just to be clear, you really don’t have a choice. Losses must be applied to gains. If you have no gains, $3000 goes against ordinary income. The process repeats until the losses are depleted. Funds pulled from deferred accounts are taxed as income.

 

[Closet_Gamer]

Just to be clear, you really don’t have a choice. Losses must be applied to gains. If you have no gains, $3000 goes against ordinary income. The process repeats until the losses are depleted. Funds pulled from deferred accounts are taxed as income.

Thanks. Yes, and you're likley better off to get the money back sooner anyways.

Unless I live to 100, the losses will never be used up $3k at a time!

 

[pb4uski]

I've been "enjoying" a carry-forward loss for a decade. What's there to do? You've already ripped off the band-aid, now you just enjoy the 3K per year.

My aunt and uncle have a large loss carryforward from 2008 that they get a $3k annual benefit offset of ordinary income.

 

[COcheesehead]

My aunt and uncle have a large loss carryforward from 2008 that they get a $3k annual benefit offset of ordinary income.

I milked my 2008 losses up until 2016. I changed brokers so the losses were from the transfer and the funds were reinvested within a few weeks. So I was never really out of the market, but gained a huge tax advantage for years.

 

[rkser]

I milked my 2008 losses up until 2016. I changed brokers so the losses were from the transfer and the funds were reinvested within a few weeks. So I was never really out of the market, but gained a huge tax advantage for years.

Not if there was a paper loss like there was in 2008, only when one sold at a loss in a taxable account, then one get to tax loss harvest.

 

[COcheesehead]

only when one sold at a loss in a taxable account, then one get to tax loss harvest.

…that’s the definition of a tax loss…

Sorta like saying a flat tire is when your tire is flat.

 

[madatrub]

My aunt and uncle have a large loss carryforward from 2008 that they get a $3k annual benefit offset of ordinary income.

Our plan is to invest in non-dividend generating assets, then use the gains over time to offset with large loss carryforward, so there are ways to "get more" out of it than just $3k per year.