Help me devise capital losses strategy

[tenant13]

While I'm obviously not happy about losing money due to what's happening I can't help seeing all kinds opportunities in this crisis. One would be something I never thought about: capital losses.

I was a complete moron last fall and moved about $250k of cash to Chase because they were offering $2k bonus. It was the money I kept in high yield savings account in case of a sudden recession disaster, LOL. It would have last me 5 years. I further lost my mind by letting their "financial advisor" invest $150k in dividend stocks. I had enough sense to insist on keeping $100k in bonds, and I had to fight him on that. Anyway - the stocks while still producing dividends (for now) lost about $50k. So here's what I'm thinking:

Sell enough to generate 30k short term capital loss. That would give me 3k worth a year of tax write off for the next 10 years (https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0). Use the money from the sale to buy stocks that are currently "on sale" that I believe will do well: stuff like Disney, Tesla, JNJ etc (I already have tons of Apple - for years). Then aggressively convert tIRA to ROTH in this downturn so I can take advantage of the tax free rebound. Slow down conversions over the years to match the recovery.

Am I thinking correctly? Missing something? What do you think?

 

[LOL!]

You are thinking sort of correctly. Yes, sell all the losers. Buy index funds instead of individual stocks with the money. Switch to Chase YouInvest which is free and stop paying the Chase salesrep for stupid costly advice.

 

[tenant13]

You are thinking sort of correctly. Yes, sell all the losers. Buy index funds instead of individual stocks with the money. Switch to Chase YouInvest which is free and stop paying the Chase salesrep for stupid costly advice.

I just called and moved all the equities into YouInvest.

 

[PaunchyPirate]

While I'm obviously not happy about losing money due to what's happening I can't help seeing all kinds opportunities in this crisis. One would be something I never thought about: capital losses.

I was a complete moron last fall and moved about $250k of cash to Chase because they were offering $2k bonus. It was the money I kept in high yield savings account in case of a sudden recession disaster, LOL. It would have last me 5 years. I further lost my mind by letting their "financial advisor" invest $150k in dividend stocks. I had enough sense to insist on keeping $100k in bonds, and I had to fight him on that. Anyway - the stocks while still producing dividends (for now) lost about $50k. So here's what I'm thinking:

Sell enough to generate 30k short term capital loss. That would give me 3k worth a year of tax write off for the next 10 years (https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0). Use the money from the sale to buy stocks that are currently "on sale" that I believe will do well: stuff like Disney, Tesla, JNJ etc (I already have tons of Apple - for years). Then aggressively convert tIRA to ROTH in this downturn so I can take advantage of the tax free rebound. Slow down conversions over the years to match the recovery.

Am I thinking correctly? Missing something? What do you think?

I am sort of doing what you suggest. I've been holding on to 10 individual stocks because they had accumulated a lot of capital gains that I didn't want to pay taxes on to sell. Like all stocks, they have been falling in value over the last month but still had gains. I also had accumulated about $30,000 in losses in my Total International Stock Market mutual fund at Vanguard. So I sold the Total International Stock fund in it's entirely and used all the proceeds to buy a comparable international mutual fund. So I tax loss harvested $30k with no real loss of international holdings. Then I was able to sell 7 of my 10 individual stocks while they still had small profits (totaling around $30,000). My capital losses will offset my capital gains resulting in zero tax liability and I am free of 7 individual stocks I didn't want to hold. I will next take the proceeds from those 7 stocks and buy into the Total Stock Market mutual fund at Vanguard on down day. This way I am MUCH more diversified, but still invested in stocks. I do not ever want to buy more individual stocks. Too much money in one basket. I've learned the "be diversified" lesson. The 3 stocks I still hold are Apple, Salesforce, and Visa. They still have large gains. Time will tell how long I hold them for.

 

[tenant13]

I just found another thread about pretty much the same strategy: https://www.early-retirement.org/fo...-loss-harvesting-plan-102844.html#post2395592

I thought the maximum amount of losses you can write off per year is 3k but the way you're describing it, it seems that the losses will be immediately offset by gains so your tax liability will be zero. I can generate short term losses and sell some Apple (LTG) which is still 100% up from when I bought it. But given that I believe Apple will bounce back fairly fast, I think I'm much better off having these losses in my pocket for the long term.

 

[Lsbcal]

I have a short term loss in the SP500 fund. So I could take some of that ST loss as the OP states and use 3k a year against income.

Here is another thought. At a future date artificially generate a ST cap gain to use against that ST loss. For example, one might rebalance into the SP500. When enough is established with that rebalance money, sell it for a ST gain. For one month buy the Total Stock Mtk index (to avoid the wash sale rule) and then buy back into the SP500.

Ideally you want to match ST losses against ST gains, not long term gains.

 

[tenant13]

Ideally you want to match ST losses against ST gains, not long term gains.

I play with simple options selling covered calls and puts. So far I've been doing it within IRA to avoid tax headaches but I might as well do it in the brokerage account - that would be ST gain.

 

[cathy63]

I just found another thread about pretty much the same strategy: https://www.early-retirement.org/fo...-loss-harvesting-plan-102844.html#post2395592

I thought the maximum amount of losses you can write off per year is 3k but the way you're describing it, it seems that the losses will be immediately offset by gains so your tax liability will be zero. I can generate short term losses and sell some Apple (LTG) which is still 100% up from when I bought it. But given that I believe Apple will bounce back fairly fast, I think I'm much better off having these losses in my pocket for the long term.

The $3K is the maximum amount you can write off against income that was not from cap gains. You can use a cap loss to offset all of your cap gains.

See this: https://www.investopedia.com/articles/investing/062713/capital-losses-and-tax.asp

While any loss can ultimately be netted against any capital gain realized in the same tax year, only $3,000 of capital loss can be deducted against earned or other types of income in a given year.

or this: https://www.irs.gov/taxtopics/tc409

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 21 of Schedule D.

If, during the remainder of this year, you incur $30K in cap gains, then you'll use up your entire loss this year. Even if you use only $3K this year, you could incur $27K in gains next year and use it all up then.

 

[audreyh1]

I have a bunch of legacy active mutual funds that I have been gradually moving out of as I could without too big a tax hit. The main goal was portfolio simplification looking towards me getting older. Another biggie was outsized cap gains distributions paid by some of these active funds after 2013.

My plan just got accelerated big time, so I am taking advantage.

 

[Lsbcal]

Another strategy, if one has losses in a taxable account. Sell for tax harvesting and buy the same thing back in a retirement account. If it is a Roth then when the market comes back those gains are all yours, no need to get taxed on them.

 

[tenant13]

Another strategy, if one has losses in a taxable account. Sell for tax harvesting and buy the same thing back in a retirement account. If it is a Roth then when the market comes back those gains are all yours, no need to get taxed on them.

That would trigger wash sale (https://www.schwab.com/resource-center/insights/content/a-primer-on-wash-sales). Stuff that I want to sell is a selection of stocks my "advisor" pushed on me - it was a very costly lesson in how not to handle my own money. I just realized he doesn't even have a clue what equities I hold, lol. It was all outsourced to JP Morgan trading floor and bundle up with other small potatoes.

 

[Lsbcal]

That would trigger wash sale (https://www.schwab.com/resource-center/insights/content/a-primer-on-wash-sales). Stuff that I want to sell is a selection of stocks my "advisor" pushed on me - it was a very costly lesson in how not to handle my own money. I just realized he doesn't even have a clue what equities I hold, lol. It was all outsourced to JP Morgan trading floor and bundle up with other small potatoes.

Then just buy something close but not identical. Like Total Stock Market if selling the SP500.

 

[tenant13]

If the holding are repurchasd to a separate non-taxable account does that trigger a wash sale? In our case I could sell in the joint taxable account and buy in my own Roth. Not sure that is a wash sale trigger but I'm no expert on this.

If it does trigger the wash sale rule then just buy something close but not identical. Like Total Stock Market if selling the SP500.

Q: What would happen if I sold a security at a loss in a taxable account and then immediately repurchased it in a retirement account, such as an IRA?

The IRS has ruled (Rev. Rul. 2008-5) that when an individual sells a security at a loss and then repurchases that security in their (or their spouses’) IRA within 30 days before or after the sale, that loss will be subject to the wash-sale rules.


I have a whole list of things that I would much rather hold than all the crap my advisor purchased for me.

 

[SecondCor521]

Here is another thought. At a future date artificially generate a ST cap gain to use against that ST loss. For example, one might rebalance into the SP500. When enough is established with that rebalance money, sell it for a ST gain. For one month buy the Total Stock Mtk index (to avoid the wash sale rule) and then buy back into the SP500.

In the case of selling for a gain, there is no need to wait a month. The wash sale rule only affects capital losses, not capital gains. When capital gain harvesting, you can sell and then rebuy as immediately as your broker and cash balance will let you.

 

[gayl]

It's probably not smart but I sold my 1000 shares SPY at a 60% increase and tried to sell BofA but I couldn't get the order to take. I did sell CCL. (IRA)

Then I bought SCHB & 100k CDs. My IRA is 'ok' if it takes FOREVER to recover but not what I want. The legacy account is probably going to recover before I die. Mentally that's not mine even though it's reported under my SSN so no changes there. Still I wish I had paid attention to you all before.

Going ahead I'm trying to position 60% stock / 35% CDs / 5% tax free munis (I still don't understand bonds). Instead of my 80% stock (& stock indexes) / 15% cash / 5% munis.

 

[gayl]

It's probably not smart but I sold my 1000 shares SPY at a 60% increase and tried to sell BofA but I couldn't get the order to take. I did sell CCL. (IRA)

Then I bought SCHB & 100k CDs. My IRA is 'ok' if it takes FOREVER to recover but not what I want. The legacy account is probably going to recover before I die. Mentally that's not mine even though it's reported under my SSN so no changes there. Still I wish I had paid attention to you all before.

Going ahead I'm trying to position 60% stock / 35% CDs / 5% tax free munis (I still don't understand bonds). Instead of my 80% stock (& stock indexes) / 15% cash / 5% munis.

I just can't get out of my way!! [emoji850][emoji2955]

I really wanted to reallocate to 60% / 40% cash-CDs-bonds. Wound up 73% stocks (60% index) / 20% CDs (locked those up for 30 days to keep me out of individual stocks) / 7% bonds.