Offsetting capital gains

[Gulfbeach]

Thank you all for answering my question and I should definitely have been more specific. I have great faith in the brain power of this group and after leaving a message for my tax man over the weekend I turned to you all.
The donation was for an endowed scholarship and I did not use appreciated stocks. At the time the 2021 exception to the 60%rule was in effect but was only supposed to be for that year. I had decided it would work for me either way and now that it is September was curious if it had been extended for 2022.
Thanks again for your help.

 

[ownyourfuture]

Maybe. Capital losses are used to offset capital gains, but once those are covered, if you still have losses, you can apply $3000 to offset current income. If you still have losses after that, they will carry forward.

I'm a probably misunderstanding this, but I have to ask.
I'm age 60, retired, & at this time, I'm not taking any IRA or 401-k distributions. My only income is a private sector pension + whatever interest, dividends, & capital gains my taxable brokerage account kicks out.

Not sure it matters, but I also contribute the maximum ($4650.00) to a qualified HSA account annually.

Here's a screen capture of the taxable brokerage account. I set it up (hypothetically) to show that I've had exactly $3000 in capital gains & $3000 in capital losses for 2022 (A Wash)

If those figures were the same come December (after any & all capital gains have been paid out) does this mean that ‘if’ I had an additional $3000 in capital losses, I could realize those losses & it would reduce my income by that amount ?

Thanks

 

[Graybeard]

I don't know what WSR means. The IRS term is "substantially identical", and the same mutual fund would obviously meet that criteria. We are in general agreement on that point.

The issue I was raising with your example is that - at least it seemed to me based on what you wrote - you were trying to apply the wash sale rule to a period involving a gain. From your earlier post which I was alluding to:



(Emphasis added.) That is generally not correct the way you wrote it. The period that matters is the 61 day timeframe around when the capital loss occurred, which in this example happened in 2021. The 61 day period around any capital gain is generally irrelevant to the wash sale rule.

(I did interpret that cap loss in 2021 as being more than 31 days prior to the sale that created the $40K cap gain, but I think that is a reasonable reading of the example.)

WSR - Wash Sale Rule.

Maybe this doesn't matter but for the sake of clarity what I wrote was a typo. The red text, I meant "shares" not "sales"!
If you sold the stock index mutual fund but had bought sales directly or via reinvestment of dividends or capital gains 30 days prior to and 30 days after the sale that created the $40k cap gain then you can not use the 2021 capital loss to offset the gain because you just violated the Wash Sale Rule.

And lastly, ah yes, I see what you mean! I wasn't thinking clearly and forgot the loss occurred the prior year. I understand and agree it is the 61 day timeframe around the date of the sale that created the loss that the WSR applies.

Sorry for the confusion.

 

[COcheesehead]

I'm a probably misunderstanding this, but I have to ask.
I'm age 60, retired, & at this time, I'm not taking any IRA or 401-k distributions. My only income is a private sector pension + whatever interest, dividends, & capital gains my taxable brokerage account kicks out.

Not sure it matters, but I also contribute the maximum ($4650.00) to a qualified HSA account annually.

Here's a screen capture of the taxable brokerage account. I set it up (hypothetically) to show that I've had exactly $3000 in capital gains & $3000 in capital losses for 2022 (A Wash)

If those figures were the same come December (after any & all capital gains have been paid out) does this mean that ‘if’ I had an additional $3000 in capital losses, I could realize those losses & it would reduce my income by that amount ?

Thanks

Based on what you have said, yes. Will it matter for taxes though? Depends on your income.

 

[ownyourfuture]

Based on what you have said, yes. Will it matter for taxes though? Depends on your income.

Thanks for the reply.
My pension totals $36,696
Total income from the taxable account shown above will be around 12 K by year end.
Dividends from ESPP shares = $1400
Around 50,100 for the year.

 

[SecondCor521]

WSR - Wash Sale Rule.

Maybe this doesn't matter but for the sake of clarity what I wrote was a typo. The red text, I meant "shares" not "sales"!
If you sold the stock index mutual fund but had bought sales directly or via reinvestment of dividends or capital gains 30 days prior to and 30 days after the sale that created the $40k cap gain then you can not use the 2021 capital loss to offset the gain because you just violated the Wash Sale Rule.

And lastly, ah yes, I see what you mean! I wasn't thinking clearly and forgot the loss occurred the prior year. I understand and agree it is the 61 day timeframe around the date of the sale that created the loss that the WSR applies.

Sorry for the confusion.

No worries, thanks for the reply and the clarification on "WSR".

 

[COcheesehead]

Thanks for the reply.
My pension totals $36,696
Total income from the taxable account shown above will be around 12 K by year end.
Dividends from ESPP shares = $1400
Around 50,100 for the year.

Single or joint filer?

 

[ownyourfuture]

Single or joint filer?

Single

 

[COcheesehead]

Single

It will save you about three hundred bucks or so.

 

[ownyourfuture]

It will save you about three hundred bucks or so.

Better than a sharp stick in the eye
It 'might' also lower my ACA premiums.

Thanks

 

[imnontrad]

Great.. I'll have to live to be 100 before my losses are used up...Does it matter whether they are long term or short term?

So if I have a $40,000.00 carry over loss from 2022 and I sell a security that has a $40.000.00 gain in 2023 is the effect on my income zero?

Do you have ANY equities with a gain? you could "whittle" that loss down a bit more every year by selling the stocks where you have a gain, apply your loss against that to avoid capital gains tax and then immediately buy those stocks back. Although there is the 30 day requirement in case of tax loss harvesting, there is NO minimum time limit for capital gains.

 

[lawman]

Do you have ANY equities with a gain? you could "whittle" that loss down a bit more every year by selling the stocks where you have a gain, apply your loss against that to avoid capital gains tax and then immediately buy those stocks back. Although there is the 30 day requirement in case of tax loss harvesting, there is NO minimum time limit for capital gains.

Just to be clear, so if I have a profit in Exxon and sell it to offset my carry over loss I can buy it back the next day and still avoid the 30 day wash rule?? Can I buy it back the same day?

 

[COcheesehead]

Just to be clear, so if I have a profit in Exxon and sell it to offset my carry over loss I can buy it back the next day and still avoid the 30 day wash rule?? Can I buy it back the same day?

If you sell all the shares at a gain, the wash rule does not apply. You can buy them back 10 seconds later.

 

[cathy63]

Just to be clear, so if I have a profit in Exxon and sell it to offset my carry over loss I can buy it back the next day and still avoid the 30 day wash rule?? Can I buy it back the same day?

The wash sale rule applies when you sell something at a loss. If you are selling at a profit, you can rebuy it whenever you want.

 

[lawman]

Okay maybe someone good at math here will help me out. I own 3303.384 shares of mutual fund A. It has a market value of $221,954.37. My cost is $112,517.16. My unrealized gain is $109,437.21. How much can I sell to offset a $40,000.00 loss..I would be very appreciative if you would show your work..Thanks!

 

[38Chevy454]

Here is how I would calculate it, assuming your basis is equal for all shares:
Basis percentage is $112,517.66 / $221,954.37 = 50.69%

Now take 50.69% x ($ amount to sell) = $40,000.
Solve for amount to sell: $40,000 / .5069 = $78,911.03

So to get a net cap gain of $40,000 you need to sell $78,911.03. Of which $40,000 is cap gain amount and $38,911.03 is your original investment amount.

 

[SecondCor521]

Here is how I would calculate it, assuming your basis is equal for all shares:
Basis percentage is $112,517.66 / $221,954.37 = 50.69%

Now take 50.69% x ($ amount to sell) = $40,000.
Solve for amount to sell: $40,000 / .5069 = $78,911.03

So to get a net cap gain of $40,000 you need to sell $78,911.03. Of which $40,000 is cap gain amount and $38,911.03 is your original investment amount.

This doesn't look correct to me. It looks like this is the amount to sell in order to realize a sale of $40K of basis, not $40K of cap gains. It's easy to miss because in this case the basis and gains are nearly equal. (Also, and it's almost an unnoticeable error, but the cents in the first value above should be 16, not 66.)

I would calculate it as:

$109,437.21 / $221,954.37 = 0.4930617495839347519942950436164
$40,000 / 0.4930617495839347519942950436164 ~= $81,125.74

Personally I would also aim for a $37K gain and use the remaining $3K of loss to offset ordinary income, since the loss is more valuable that way:

$37,000 / 0.4930617495839347519942950436164 ~= $75,041.31

I might sell $76,000 or so just so that my resulting gain was a bit more than $37K so my net loss was a bit less than $3K, so I didn't have to worry about a carry forward.

Also, @lawman, it may be helpful to know that many platforms, when you go to sell, will give you an estimate of the proceeds and/or the realized capital gains before you execute the trade. This can help confirm the math and know that you're doing what you want to do.

 

[lawman]

This makes my head hurt..I want to sell some to offset most but not all of my losses..I don't mind some carryover loss but I have $40,000.00 now and I'm an old man..What is a very safe amount I can sell without using all my loss?

 

[copyright1997reloaded]

Do you have ANY equities with a gain? you could "whittle" that loss down a bit more every year by selling the stocks where you have a gain, apply your loss against that to avoid capital gains tax and then immediately buy those stocks back. Although there is the 30 day requirement in case of tax loss harvesting, there is NO minimum time limit for capital gains.

This is what I was referring to in my earlier post: https://www.early-retirement.org/forums/f28/offsetting-capital-gains-115132-2.html#post2821684, i.e. "harvesting gains".

 

[SecondCor521]

This makes my head hurt..I want to sell some to offset most but not all of my losses..I don't mind some carryover loss but I have $40,000.00 now and I'm an old man..What is a very safe amount I can sell without using all my loss?

Since your basis is about 50%, you can just decide how much gain you want to realize and then double it.

So if you want to realize $20K worth of gain, sell $40K worth of the mutual fund.

You can always do multiple transactions if you want to realize more gain. Sell $10K today, another $10K tomorrow or next week. It all will just end up on one line on your 1099-B anyway.

ETA: In addition to @COcheesehead's comment below about the process at the sell, most platforms also should show you somewhere what your YTD capital gain / loss situation looks like. On Vanguard it's under "Cost basis" -> "Realized gain/loss" or something like that.

 

[COcheesehead]

If you use Fidelity and likely other brokerages, their sell ticket allows to pick individual lots and they will show a running total of your gain. Sell enough so that the capital gain equals your loss. Simple.

 

[lawman]

Thanks guys...Part of my problem is I seem to be paralyzed when it comes to making changes. That is why I have a $40,000.00 loss in the sale of my bond fund.. I just entered an order to sell 1000 shares of SWTSX..Under the history realized/ unrealized tab I do see the history as of yesterday. I will keep selling and buying back until my gain /loss is where I want it to be...Thanks for helping me get out of this "fear of making a mistake" frame of mind..

 

[38Chevy454]

This doesn't look correct to me. It looks like this is the amount to sell in order to realize a sale of $40K of basis, not $40K of cap gains. It's easy to miss because in this case the basis and gains are nearly equal. (Also, and it's almost an unnoticeable error, but the cents in the first value above should be 16, not 66.)

I would calculate it as:

$109,437.21 / $221,954.37 = 0.4930617495839347519942950436164
$40,000 / 0.4930617495839347519942950436164 ~= $81,125.74

Personally I would also aim for a $37K gain and use the remaining $3K of loss to offset ordinary income, since the loss is more valuable that way:

$37,000 / 0.4930617495839347519942950436164 ~= $75,041.31

I might sell $76,000 or so just so that my resulting gain was a bit more than $37K so my net loss was a bit less than $3K, so I didn't have to worry about a carry forward.

Also, @lawman, it may be helpful to know that many platforms, when you go to sell, will give you an estimate of the proceeds and/or the realized capital gains before you execute the trade. This can help confirm the math and know that you're doing what you want to do.

Yes, good catch. In quick typing mode I mixed up the orig vs gain. The cap gain portion is 100% - 50.69% = 49.31%. That 49.31% is what should be used for the cap gain in my calculation. So we are in agreement after my correction.

 

[imnontrad]

Just to be clear, so if I have a profit in Exxon and sell it to offset my carry over loss I can buy it back the next day and still avoid the 30 day wash rule?? Can I buy it back the same day?

https://www.investopedia.com/terms/w/washsalerule.asp
The wash-sale rule states that, if an investment is sold at a loss and then repurchased within 30 days, the initial loss cannot be claimed for tax purposes. ..... By wash, the IRS means that the transactions at issue cancel each other out. So, there's no real sale, an investor has effectively kept their position in the market, and thus, the loss and tax-deduction are artificial.


https://invest.smartstops.net/investing-education/wash-sale-rule-when-does-it-apply/
The Wash Sale Rule does NOT apply to profits or gains of a sale. Only losses.