Harvesting capital gains/losses

[newtoseattle]

Ok. So I thought I was getting really clever by figuring out the harvesting of capital losses and I exchanged my broad international stock fund for a similar but actively managed fund about a month ago. My brilliant plan was to exchange it back after I passed the 30 day (60 total) wash sale rule. So international stocks recovered so quickly that if I exchange back now I'll "lose" 75% of the capital gains loss (i.e. there is now a large capital gain on the new fund). Do I wait for international stocks to drop again? Do I just exchange and take the smaller "loss harvest"?

I didn't really think this whole process through before I started. I thought I'd have this fairly large loss that would carry over for a couple a years.

I want eventually to get back to my simple 3 fund portfolio (and the fund they are in now has a bit higher cost - 0.3 compared to the index fund...)

what is the general advice/rule of thumb?

Thank you

 

[catotx]

Ok. So I thought I was getting really clever by figuring out the harvesting of capital losses and I exchanged my broad international stock fund for a similar but actively managed fund about a month ago. My brilliant plan was to exchange it back after I passed the 30 day (60 total) wash sale rule. So international stocks recovered so quickly that if I exchange back now I'll "lose" 75% of the capital gains loss (i.e. there is now a large capital gain on the new fund). Do I wait for international stocks to drop again? Do I just exchange and take the smaller "loss harvest"?

I didn't really think this whole process through before I started. I thought I'd have this fairly large loss that would carry over for a couple a years.

I want eventually to get back to my simple 3 fund portfolio (and the fund they are in now has a bit higher cost - 0.3 compared to the index fund...)

what is the general advice/rule of thumb?

Thank you

Usually you should have "partner" funds that you can hold forever.

For example, VXUS and VEU are partner funds for many people. Harvest one to the other with the plan the you can hold either or both of them forever.

 

[pb4uski]

This happened to me a few years ago with gains trading some domestic funds trying to sidestep Vanguard's obnoxious frequent trading policies... I exchanged Total Stock for a combination of S&P 500, Mid-Cap and Small-Cap and before I could flip back to Total Stock they had a nice run. I just sat with it. Just got out a couple weeks ago when I sold them to fund a condo we are purchasing.

For international I swap between VTIAX and VFWAX.

 

[DrRoy]

If you sit on the new position for a year, at least it will be a long term gain instead of short term, so lower taxes.

 

[NW-Bound]

... I exchanged my broad international stock fund for a similar but actively managed fund about a month ago...

Why is it so critical that you need to get back to the original fund ASAP and cannot wait?

For such a short time as one month to satisfy the wash sale rule, what is the performance difference between these 2 funds?

 

[dvalley]

Ok, what's the purpose of going back and forth between funds? I thought tax loss harvesting was for if you lost money on a sale of an asset you could write off the lost amount? I've never done it but seen it suggested by Personal Capital's portfolio analyzer which then suggests to call their paid advisor service.

 

[pb4uski]

The purpose is to stay in that asset class (assuming it is still within your AA boundaries) and avoid losing out on a potential recovery.

For example, back in January I had an unrealized loss on some FTSE All-world x-US fund positions... I sold and got the loss and bought Total International Stock which is similar but not so similar as to trigger a wash sale. When international equities rallied, I got the benefit because I was still in international equities.

So I could have my cake and eat it too in that I got the loss for tax purposes but also got the benefit of the rally.

 

[RunningBum]

The "harvesting" part means specifically selecting losers to sell, for tax advantage.

For example, you might need some cash for something. Given a choice of investments, you probably want to sell one at a loss rather than a gain, unless your taxable income is low enough for LTCGs to be untaxed. So you harvest the investment with a loss, and probably even selected shares within that investment with more of a loss.

Some will take it further by specifically selling losers to take a tax loss even if they don't need to raise cash, and then buying them back after the wash sale period.

 

[pb4uski]

I think the traditional play is to sell a position at a loss and at the same time buy a similar position (but disimilar enough as to not trigger a wash sale) rather than being out of that sector for the wash sale period.

In my case, even though my income is in the 15% bracket so LTCG are taxed at 0%, there is a minor benefit of loss sales allowing me to do more low cost Roth conversions that year.

 

[Closet_Gamer]

Other than putting the right type of assets in the right type of accounts and using year end to sell true losers, I generally think it wise to avoid allowing tax considerations to drive my investing choices. Buy the right stuff and hold it. You should be selling losers anyways, so all "tax loss harvesting" is really doing is timing the loss harvest.

The one place I diverge from this is donating long term highly appreciated shares to my donor advised charitable trust. Allows me to donate much more with less actual financial impact and less thought and there is no need to go thru the complexity of swapping funds. I just wait 30 days and buy the same fund with fresh cash to fill in the hole I made with the donation.

 

[RunningBum]

You should be selling losers anyways,

Buy high, sell low?

 

[jebmke]

Usually you should have "partner" funds that you can hold forever.

For example, VXUS and VEU are partner funds for many people. Harvest one to the other with the plan the you can hold either or both of them forever.

This. Only swap to something you are willing to keep.

 

[jebmke]

Buy high, sell low?

Almost always pays to sell losers and buy something similar.

 

[Closet_Gamer]

Buy high, sell low?

No, but don't trade around tactical moves in share prices either. I'm a long term investor.

If you've got a real long term loser you should sell it and stay out of it, at which point you harvest losses.

If you've got some short term tactical dip (you bought in September and it dropped in December), either you should be staying in expanding your position or

1). The investment thesis has fundamental changes -- at which point you should sell and stay out of it; or,

2). you don't have a clue why you bought it in the first place -- at which point you should sell it and stay out of it.

In no case do I move in and out of things for near term tax considerations. (My earlier point about charitable contributions not withstanding.)

 

[dvalley]

Thanks guys, I understood the tax loss harvesting but with a couple of examples I'm pretty clear now. I tend to hang on to the funds/stocks until they bounce back up. I usually don't trade often enough at this stage (accumulation) for this to benefit me.

 

[kaneohe]

.............................................

The one place I diverge from this is donating long term highly appreciated shares to my donor advised charitable trust. Allows me to donate much more with less actual financial impact and less thought and there is no need to go thru the complexity of swapping funds. I just wait 30 days and buy the same fund with fresh cash to fill in the hole I made with the donation.

Why are you waiting 30 days to buy if you donated (not sold) highly appreciated (not depreciated) shares?