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Cash Merger and HUGE realized Capital Loss
Old 12-07-2023, 11:10 AM   #1
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Cash Merger and HUGE realized Capital Loss

I just logged into my Schwab account and found out that one of the stocks(AVANTAX INC) I've been holding over 25 years was sold due to mandatory merger. As a result I've over 125K capital loss. I hardly have any income but my capital gain distribution from other equities at year end would be around 25K. My total income including year end capital gain, dividends and a small consulting income would be about 50K. We are family of four so we'll not be paying any tax on the year end capital gain distribution. I do not want to use any realized capital loss against capital gain. What are my options here?

Can I just carryover that entire 125K loss to future years? I was not planning to sell anything until year 2029 but now I do not have any choice and I just do not want this loss to go to waste.
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Old 12-07-2023, 11:20 AM   #2
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I think the tax rules force you to use the loss against gains, and then you can carry anything left to following years.
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Old 12-07-2023, 11:21 AM   #3
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No... you have to net gains with losses... and then can take $3K of loss to the front.. carryover the rest.
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Old 12-07-2023, 11:25 AM   #4
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I just logged into my Schwab account and found out that one of the stocks(AVANTAX INC) I've been holding over 25 years was sold due to mandatory merger. As a result I've over 125K capital loss. I hardly have any income but my capital gain distribution from other equities at year end would be around 25K. My total income including year end capital gain, dividends and a small consulting income would be about 50K. We are family of four so we'll not be paying any tax on the year end capital gain distribution. I do not want to use any realized capital loss against capital gain. What are my options here?

Can I just carryover that entire 125K loss to future years? I was not planning to sell anything until year 2029 but now I do not have any choice and I just do not want this loss to go to waste.
You're required to use the loss each year to offset the capital gains first, then $3K against ordinary income. Any unused loss from year N gets carried forward every year to year N+1 until it's either used up or you die.

You're not permitted to electively defer using the capital loss.

(To avoid wasting the loss, make sure that you either use the same tax program each year and one that handles carryforward losses, or make sure to mention it or enter the information from the capital loss carryforward worksheet if you do happen to switch.
Oh, and try not to die too soon.)
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Old 12-07-2023, 11:31 AM   #5
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If showing income is important, if you have unrealized capital gains in taxable accounts couldn't you sell and then re-purchase to realize enough gains to offset the loss and step up your basis? Although, with the stepped up basis you could just have the same problem next year with the stepped up basis.
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Old 12-07-2023, 11:32 AM   #6
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Thank you everyone for the clarification. I am out of luck in that case. Here is why I wanted to preserve the loss.....

Original equity I bought was InfoSpace(INSP) back in 1997 before dot.com bust which went through several non-cash mergers over the years. Last merger was with AVTA. I knew that this was never going to go back up at all so I held on to sell them in chunks at the right time. Right time for me was to sell them between year 2029-2034. Why? Because in 2029 I would turn 65 and get on medicare. My wife is 5 years younger to me and would need to buy health plan on marketplace. By that time it'll be only two us on tax return as kids would be over 26 and hopefully settled with a job(medical school). So to keep obamacare MAGI down and not go over the cliff that loss during 2029-2034 would go a long way and save us lots of money.
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Old 12-07-2023, 11:33 AM   #7
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Capital losses can be applied to any capital gain, so if you are over the exemption on the sale of your house for example, you can apply the carry over.
I sold a business and used carry over tax harvest losses to save me a bunch of money.
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Old 12-07-2023, 01:30 PM   #8
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Good time to sell stocks for capital gains as the market is high now.
Then buy back the stocks for the future and when you sell them again, there will be a lot less capital gain.
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Old 12-07-2023, 02:03 PM   #9
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Good time to sell stocks for capital gains as the market is high now.
Then buy back the stocks for the future and when you sell them again, there will be a lot less capital gain.
Yep, gain harvesting and the wash rule does not apply.
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Old 12-07-2023, 02:11 PM   #10
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Agree with others. If you have taxable accounts with LTCGs, sell now, with gains up to your $125K loss, so that your gains offset your loss, with no carry-over losses. Then reinvest the funds, and when you go to sell them, the basis will be much higher, so taxes will be much lower.

Otherwise, you'll likely not live not enough to use up the $3K in annual carryover losses (42 years).
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Old 12-07-2023, 06:09 PM   #11
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Good time to sell stocks for capital gains as the market is high now.
Then buy back the stocks for the future and when you sell them again, there will be a lot less capital gain.
I want to preserve the loss not wipe off against gain. As explained earlier, I want to use that loss between the year 2029-2034.
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Old 12-07-2023, 06:17 PM   #12
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I want to preserve the loss not wipe off against gain. As explained earlier, I want to use that loss between the year 2029-2034.
So, very roughly speaking, you will have to use $25K for this year's gains, plus $3k against ordinary income. For 2024 to 2028, you will have to use another $15k (i.e., $3k per annum) if you don't have any realized gains in the meantime. This should leave you with about $72k in 2029.
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Old 12-07-2023, 06:23 PM   #13
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So, very roughly speaking, you will have to use $25K for this year's gains, plus $3k against ordinary income. For 2024 to 2028, you will have to use another $15k (i.e., $3k per annum) if you don't have any realized gains in the meantime. This should leave you with about $72k in 2029.
Yep. I will also sell any losing equity between 2024-2028 if there is any.
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Old 12-07-2023, 06:59 PM   #14
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I'm just curious: Do you know that you will have cap gains to realize in 2029-2034 that would make these losses particularly valuble (for you MAGI) during that time frame? What if it only turns out to be that you have no gains and can/must use only $3k/year from '29-'34?
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Old 12-08-2023, 10:29 AM   #15
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I'm just curious: Do you know that you will have cap gains to realize in 2029-2034 that would make these losses particularly valuble (for you MAGI) during that time frame? What if it only turns out to be that you have no gains and can/must use only $3k/year from '29-'34?
There will always be capital gain - year end capital gain distribution from all the mutual funds I own in my taxable accounts which I have no control on how much but based on the history its always around 20-25K.

Also, I am retired so I sell some at year end to cover the expenses for coming year - at least I've a control here how much capital gain to realize to stay below cliff. I will also have a choice there to sell from Roth to cover my expenses if needed to be.

But if my year end dividends and capital gain distribution go over the obamacare cliff bet 2029-2034 then I'll be out of luck and pay the full price for healthcare for my wife. We'll be family of four until 2029 as kids will be over 26 that year. My plan was to sell the above equity in chunk to wipe that gain to stay below cliff between 2029-2034.
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Old 12-08-2023, 11:03 AM   #16
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you might consider selling those funds and buying individual stocks, perhaps non-dividend payers, so you can control when the capital gains are realized in future years
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Old 12-08-2023, 11:17 AM   #17
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Mutual funds in taxable accounts = uncontrolled tax liabilities. Major index funds generally are more tax efficient.
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Old 12-08-2023, 11:31 AM   #18
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you might consider selling those funds and buying individual stocks, perhaps non-dividend payers, so you can control when the capital gains are realized in future years
Or ETFs. I'm not certain ETFs are guaranteed to not have a cap gains distribution, but they seem to be extremely rare (at least for the major broad- index types).

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Old 12-09-2023, 02:36 PM   #19
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you might consider selling those funds and buying individual stocks, perhaps non-dividend payers, so you can control when the capital gains are realized in future years
This.

Indivual holdings give one much more control. Well, except that time my largest holding at the time (LLTC) got bought by ADI for a mostly cash plus some stock deal (and thus I couldn't just keep the stock converted to ADI). While it was a good problem to have, it was a bit nasty in terms of taxes w/NIIT.
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Old 12-09-2023, 08:27 PM   #20
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(To avoid wasting the loss, make sure that you either use the same tax program each year and one that handles carryforward losses, or make sure to mention it or enter the information from the capital loss carryforward worksheet if you do happen to switch.
Oh, and try not to die too soon.)
No need to keep the same software. Just record the loss carryforward in your tax records and update each year as you go.

You would want to check it anyway by tying it to prior year return, no matter the software.
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