Tax-Loss Harvesting - Questions

[G-Man]

This year is a high ordinary income year for me. To offset ordinary income taxes, I would like to implement a tax-loss harvesting strategy.

I have a stock (BODI) I purchased 2 years ago with a cost basis of $7470. The current value is $112. So, a -98.50% capital loss.

What are the rules and limitations surrounding tax loss harvesting, including the wash sale rule?

As it relates to the wash sale, can I purchase another stock (ex. MO) immediately after selling the BODI stock or do I need to wait 30 days? I want to complete the entire process by the 12/31/2024.

As far as reporting the capital loss/tax-loss harvesting in TurboTax desktop version, where would I enter this information? It looks like I can only claim $3000 per year of capital loss. So, I would carry over the loss of the next 2 years.

Any other tips or recommendations are welcomed.
Thanks

 

[RunningBum]

You can buy any different stock right away. You just couldn't buy back BODI right away.

TT will ask you about stock sales and you'll enter this transaction there. It will go on Schedule D. If you have any other stock sales the loss on BODI is used against it. If you have none or anything left over, TT will handle putting the $3000 loss on line 7, and a carryover worksheet for the next. Next year, if you use TT or any other tax program that can read the previous year's return, it should pick up that carryover loss from the worksheet and apply it to schedule D.

 

[SecondCor521]

This year is a high ordinary income year for me. To offset ordinary income taxes, I would like to implement a tax-loss harvesting strategy.

I have a stock (BODI) I purchased 2 years ago with a cost basis of $7470. The current value is $112. So, a -98.50% capital loss.

What are the rules and limitations surrounding tax loss harvesting, including the wash sale rule?

See below.

As it relates to the wash sale, can I purchase another stock (ex. MO) immediately after selling the BODI stock or do I need to wait 30 days? I want to complete the entire process by the 12/31/2024.

The wash sale rule applies if you sell at a loss (BODI in your case) then buy a substantially identical security within 30 days either before or after the date of the sale at a loss.

It's up to the IRS to decide what "substantially identical" means, but I don't think anyone would say BODI and MO are substantially identical. If you agree, then you could buy MO immediately after BODI and would not have to wait 30 days.

As far as reporting the capital loss/tax-loss harvesting in TurboTax desktop version, where would I enter this information?

I'm not sure on TurboTax, but the sale of BODI should end up on Schedule D and possibly Form 8949. TT probably has a helpful search or Q&A feature for you to enter this information. TT might also be able to import your 1099-B from your broker and put the information in the right place.

It looks like I can only claim $3000 per year of capital loss. So, I would carry over the loss of the next 2 years.

As the other poster mentioned, your losses first go against any capital gains, and then up to $3000 can also be applied against ordinary income.

There is a capital loss carryforward worksheet that TT should fill out for you that will carry forward any unused loss to future tax years. TT should easily handle the carryforward if you use them for your 2025 taxes. If for whatever reason you go to another tax software or a tax human for 2025, it'd be worth doublechecking that the carryforward was handled properly.

Any other tips or recommendations are welcomed.
Thanks

You could consider selling only enough of BODI shares to generate a slightly less than $3K capital loss. Then sell more next year. Pretty much the same result but not needing to deal with the carry forward worksheet. It's not that big of a deal, but it's sort of what I do in order to avoid making sure to remember the carry forward (my odd self likes having each tax year be its own thing).

 

[G-Man]

So, I would get a 1099-B from my brokerage firm right?

 

[RunningBum]

So, I would get a 1099-B from my brokerage firm right?

yes. Just entering that into TT should be all you need to do.

 

[SecondCor521]

yes. Just entering that into TT should be all you need to do.

+1

1099-B usually arrives late January for simple situations like this one.

 

[PaunchyPirate]

Correct. TurboTax can import your 1099-B directly from your broker, if they are a major one. Ideally it will have ALL the information needed to do your taxes accurately. However, if the cost basis info was not accurate with your broker, or the shares were originally purchased before they were required to start tracking cost basis, then you will need to supply the cost basis for the sale. I always double check what the 1099-B says my cost basis is with my own records, just in case.

If you have sold nothing else for a gain that offsets the loss transaction, then only $3000 will be used to reduce your income this year. The rest will be carried over to next year and onward if necessary. TurboTax does this all automatically, but again, it is smart to verify it is done properly. I've been using TurboTax for years and never had an issue with this part of the equation.

If this year is an anomaly of high income, you might consider selling something else that has a $4000 profit. That $4000 gain will be subtracted from your $7000 loss -- you would not have to pay capital gains taxes on the $4000 gain. You would still have $3000 left to reduce your income this year by the max amount of a capital loss.

 

[G-Man]

Correct. TurboTax can import your 1099-B directly from your broker, if they are a major one. Ideally it will have ALL the information needed to do your taxes accurately. However, if the cost basis info was not accurate with your broker, or the shares were originally purchased before they were required to start tracking cost basis, then you will need to supply the cost basis for the sale. I always double check what the 1099-B says my cost basis is with my own records, just in case.

If you have sold nothing else for a gain that offsets the loss transaction, then only $3000 will be used to reduce your income this year. The rest will be carried over to next year and onward if necessary. TurboTax does this all automatically, but again, it is smart to verify it is done properly. I've been using TurboTax for years and never had an issue with this part of the equation.

If this year is an anomaly of high income, you might consider selling something else that has a $4000 profit. That $4000 gain will be subtracted from your $7000 loss -- you would not have to pay capital gains taxes on the $4000 gain. You would still have $3000 left to reduce your income this year by the max amount of a capital loss.

Good idea. Thanks for the tip.

 

[G-Man]

Rather than buying another security with the sale of BODI, can I just take the cash proceeds ($120) from the sale and deposit it in my bank account. Will that impact my tax loss harvesting strategy at all?

 

[VanWinkle]

Rather than buying another security with the sale of BODI, can I just take the cash proceeds ($120) from the sale and deposit it in my bank account. Will that impact my tax loss harvesting strategy at all?

The loss still counts. It will not impact your strategy.

 

[audreyh1]

Rather than buying another security with the sale of BODI, can I just take the cash proceeds ($120) from the sale and deposit it in my bank account. Will that impact my tax loss harvesting strategy at all?

No impact. You don’t have to buy anything else.

 

[marko]

A simple/separate/different question rather than open another thread:

TT shows that I have a loss carryover from 2023. I will use it in 2024's taxes. Does TT automatically do that/find where it goes or do I have to do it myself?

 

[Out-to-Lunch]

A simple/separate/different question rather than open another thread:

TT shows that I have a loss carryover from 2023. I will use it in 2024's taxes. Does TT automatically do that/find where it goes or do I have to do it myself?

If you use TT year after year, it keeps track of it. You have the opportunity to change it, if you had to for some reason, but it does retain that information.

 

[TheWizard]

A simple/separate/different question rather than open another thread:

TT shows that I have a loss carryover from 2023. I will use it in 2024's taxes. Does TT automatically do that/find where it goes or do I have to do it myself?

I'm pretty sure that all tax software does that automatically, assuming you log into the same account you've used previously.
FreeTaxUSA certainly does...

 

[Texas Proud]

Yea, I have used different tax software (TT and H&R) and both either read the file of the other or read the PDF of the return and populate a LOT of information.

Just be aware that not all info comes over even if you use the same program. I had some business tax credits that did not come over to the new return... I had to add them the next year manually when I noticed them missing and needed them.

 

[SecondCor521]

A simple/separate/different question rather than open another thread:

TT shows that I have a loss carryover from 2023. I will use it in 2024's taxes. Does TT automatically do that/find where it goes or do I have to do it myself?

It should, but you can confirm by looking at line 6 or line 14 of Schedule D on your 2024 tax return and ensuring that the proper numbers are there. The proper numbers are on your 2023 capital loss carryforward worksheet, which should be with your 2023 tax return print out.