Questions about my Tax Loss Harvesting plan

[Earl E Retyre]

I want to make sure I do not screw this up. So, figured I would validate my plan with all you helpful people! Thanks in advance.

I have $35k in losses in my taxable account that is invested in VTI (Total Stock Market) that I want to capture so that I can offset future gains. Here is my plan:
(1) Sell all of VTI in my taxable account which would capture the $35k loss

(2) I do not want to change my overall stock allocation and assume that when I sell, the proceeds are not immediately available to reinvest. But I have the equivalent cash available in my nontaxable account, so, in that account I will purchase the equivalent $ in VOO (S&P 500).

a. Prior to doing this, since I also have VTI in my non-taxable account, I need to set this account to “do not reinvest dividends” to avoid a wash sale. Is this true and necessary? If I do not do this, is the wash sale limited to the amount of my dividends as opposed to the entire amount?

(3) Once my proceeds are available in my taxable account from the sale of VTI, if I wanted to, I could always purchase VOO in taxable and sell the VOO from my nontaxable account to get back to the same allocation in taxable vs nontaxable accounts.

(4) I plan to sell a real estate property next year which would will have capital gains. Assuming I have no gains this year, I believe I can take $3k of the capital losses this year from my taxes and carry over the remaining $32k losses to next year. Then, when I sell the property, I can offset $32k of the capital gains.

Hopefully, that all makes sense. Any issues with any steps in this plan or my understanding?

 

[RunningBum]

2a. Yes, this is true and necessary. If you don't do this, you would permanently lose the capital loss benefit in taxable for the number of shares you purchase in non-taxable from the dividend reinvestment.

I'm not 100% certain, but I think you could exchange VTI for VOO in your taxable account and not be on the market at any time. But you could do it your way as all.

And yes, you can use this year's carried over losses to offset capital gais next year.

 

[VanWinkle]

I would just reinvest into Voo in the taxable account.

You must turn off the reinvestment of dividends on VTI non-taxable account if
there will be a reinvestment within 31 days(the record date for VTI may be today)

You are correct on 3000 ded ordinary income this year and carry over to
capital gains next year. Note your house sale will have 500,000 exempted
from cap gains if you are MFJ return, so only gain above 500,000 is subject
to cap gains.

VW

 

[RunningBum]

Also note if you've had any dividends in VTI reinvested in non-taxable in the last 31 days, that's also a wash sale and you will lose the capital loss on an equivalent # of shares in taxable.

 

[Earl E Retyre]

Thanks so much for your answers, RunningBum and VanWinkle. Much, Much appreciated!

I did not realize I could do a sale of VTI and purchase of VOO in one transaction. So, doing that will simplify this enormously!

Thanks for clarifying the dividend reinvest.

VanWinkle, I forgot to mention that the real estate I am selling is a rental property, so I do not believe I get the advantage of the first $500k of gains being exempt.

Now, I just need to figure out whether to do this transaction today and capture the $35k loss or wait to try and capture more losses. As I write this, the market is up 6%. Dead cat bounce or did we hit the bottom? Sure would be nice to know.

 

[38Chevy454]

VanWinkle, I forgot to mention that the real estate I am selling is a rental property, so I do not believe I get the advantage of the first $500k of gains being exempt.

You are correct, the rental is not able to use the $500K exemption, that is for your personal house. If you lived in the rental for at least 2 of the past 5 years you could. But sounds like the rental house sale will just be capital gain (hopefully), and your TLH will help offset those gains. Don't forget you have to reduce the cost basis for any depreciation taken on the rental house; which will make the gain larger.