Question about the significance of TLH losses

[SunnyOne]

On another forum, a poster mentioned racking up over $200K in tax loss harvesting over the past couple weeks in order to offset future gains.

He is 50 years old.

We are limited to $3K/year..... if he lives to 80, he can only use $90K of those losses, right?

I am scratching my head wondering why would we accumulate losses far in excess of our likelihood to use them, given age and annual limits.

Can someone please explain this to me? Thank you.

 

[MichaelB]

Capital losses can offset capital gains without limit. Once gains have been offset, and additional 3K per year of capital losses can be used to offset ordinary income. Additionally, current losses can accrue and offset capital gains in future years as well.

 

[SunnyOne]

Thank you. I guess I was only looking at ordinary income.

 

[audreyh1]

We get a lot of cap gains income in the form of long-term capital gains distributions from mutual funds. Those are offset by harvested cap gains losses, so we can offset future taxable income much more quickly than $3K per year.

 

[LOL!]

I have been retired a number of years now. In order to pay expenses, I have to sell shares of investments out of my taxable account. I do not sell assets in my IRA, 401(k), Roth, but let them continue to grow.

So back to selling taxable account shares: When I sell shares at a gain, I get the original principal back tax-free and the realized capital gain gets offset by all my previous tax-loss harvesting and carry over. This means I can actually have more than $100,000 a year of money to spend with having almost no income except for those stupid pesky dividends that my taxable account investments pay. Thankfully, $3000 of those dividends also get offset by the losses and the rest are mostly qualified dividends taxed at the special low rate of 0%.

So with no income, I can fill up my deductible with Roth conversions and then some. You may ask, "Roth conversions? What do those have to do with tax-loss harvesting?" Those Roth conversions are made from tax-deferred accounts, so that money was tax-free going in and mostly tax-free coming out and then tax-free in the future. Hard to follow? Think harder about it all.

Bottom line: Tax-loss harvest every possible loss every year you can. Simple.