Wash Rule and Capital Gains/Loss Carryover Clarity

[COcheesehead]

Harvesting to me means that you are selling your losers and keeping your winners....


If every share has the same price you either have all as a gain or all as a lost... no decision to be made as you cannot 'harvest' a specific lot...

But you can harvest a specific position, partially or completely to offset gains taken or incurred from another position.

 

[Graybeard]

OK, I misread what you wrote.

I don't understand your question, so here's an example.

You had a capital loss of $10K in 2021. You can take $3K off your earned income, and save $660 in fed tax if you are in the 22% bracket. You retain $7K of losses for future years.

In 2022, let's say you have a cap gain of $9K. Applying the $7K loss carryover, you have a net gain of only $2K that is now taxable.

How much tax to pay on that $2K depends on your bracket, and all that.

I see. My lack of understanding made my question confusing. The point I wanted to know, and you told me, is the cap losses wash away (or eliminate for a better term) your cap gains dollar for dollar and then you'd owe taxes on the difference per your tax bracket. That is pretty powerful. The mere $3k offset to income is pretty small, not worthless but far far less powerful. Thanks!

 

[NW-Bound]

I see. My lack of understanding made my question confusing. The point I wanted to know, and you told me, is the cap losses wash away (or eliminate for a better term) your cap gains dollar for dollar and then you'd owe taxes on the difference per your tax bracket. That is pretty powerful. The mere $3k offset to income is pretty small, not worthless but far far less powerful. Thanks!

However, for a couple filing joint return, if your income is less than $105,900, you can have that much in cap gain and qualified dividends tax-free. That's much more powerful.

Suppose you have $3M in S&P in a taxable account. At a dividend yield of 1.5% or so, it throws off $45K in dividend tax free for you. And each year, you can sell off and immediately buy back in the next second to realize $60,900 in capital gain, also tax free.

And you want to do this selling/immediate-buy-back to raise the basis of your shares, because this tax-free allowance does not accumulate.

 

[SevenUp]

However, for a couple filing joint return, if your income is less than $105,900, you can have that much in cap gain and qualified dividends tax-free. That's much more powerful.

Suppose you have $3M in S&P in a taxable account. At a dividend yield of 1.5% or so, it throws off $45K in dividend tax free for you. And each year, you can sell off and immediately buy back in the next second to realize $60,900 in capital gain, also tax free.

If and only if you have no other income. For 2022 and MFJ both under age 65, it's $109,250 - again, only if there is no other income.

 

[Texas Proud]

But you can harvest a specific position, partially or completely to offset gains taken or incurred from another position.

I do not consider it harvesting if there is no decision to be made...


Others can


I have a stock in a taxable account with a loss... I am going to sell it to get that loss... IMO not harvesting as I have only one lot... but I can see that someone might say your are harvesting the loss...