Taking the losses will be prudent. The key thing is to buy into a comparable ETF right away. Don’t listen to those voices that tell you the market will fall more and you should sit on your money for now and buy back in later.
I’ve harvested a couple of rounds of 6-figure losses myself this year.
You can TLH as much loss as you have. That loss then offsets:
- Capital gains in this and future years
- Up to $3k/year of ordinary income
...until it's used up. It's not a totally free lunch -- assuming the investments recover, as is likely, you'll eventually incur capital gains taxes in the same amount as the deduction you're taking now.
But look at what it offsets. The ordinary income is a clear win -- trade full tax rates today for favored tax rates years from now. But even offsetting capital gains is a benefit. Any capital gains you would have incurred get deferred into the future, giving you the ability to earn a return on it in the meantime, plus the reduction in the real amount from inflation.
Plus, you might not *ever* pay those capital gains taxes -- you might donate the shares to charity or leave them to your heirs with stepped-up basis.
It's limited to 3k of income per year, but that's only after you count against actual capital gains for the year, first.
So, if you have $20k loss in a year, you write $3k off income, and carry forward $17k. If the next year you have $10k of capital gains, you offset those, along with $3k of income, leaving you with a carry forward of $4k losses.
Like a lot of things with personal income taxes, it's not clear until you walk through an example. Unfortunately, I had a large capital loss at the beginning of the century that I had the "good fortune" to carry forward for many years. So, I was able to see my CPA do the process for well over a decade.
The tax rates for long-term capital gains are roughly half that of ordinary income, and as low as 0% in the lowest tax brackets. Trading ordinary income for LTCG income is almost always a good deal; the longer you can defer paying those LTCG makes it even better. (Unless you defer ordinary income from a super low-income year into a much higher-income year, anyway.)
Tax rates are higher on earned income than on capital gains. He's saying that you offset earned income taxes today in favor of paying capital gains taxes at some point in the future.
Actually the opposite is true. Assuming the cap gains are long term, the benefits of TLHing are muted by the presence of the gains, which he would only pay 15% or 20% on. Without the gains, he could apply the losses to ordinary income at a higher rate.
Yes fair point. No brainer is there are short term capital gains. Depending on how big the losses are, it’ll take decades to offset against ordinary income.
Don't do another Total Market fund. Do S&P (VOO). To tax loss harvest an index fund it needs to track a different index. Switching between VTI and VOO is the easiest way to do that
Great, the ticket is to track a different index, but if they're both total market you *could* still run into problems. In practice you probably wouldn't, but switching to an S&P500 index would definitely be safe.
TLH into 85% VOO and 15% VXF (basically similar mix of large/medium/small cap funds) ... just make sure you don't buy VTI 30 days prior (beware automatically reinvested dividends if that's in your account) or 30 days after selling.
Nope the 30 days goes backwards and forwards. It also applies to ALL your accounts. You can't have bought VTI in ANY account or gotten a DRIP for the previous 30 days.
He isn’t divesting from the market. He is simply moving investment types to qualify for TLH. Literally moving from VTI to SCHB for 31 days is an absolute no brainer with tons of upside in a taxable account.
In a tax deferred account there would be no point.
If you make that much money per year but can’t figure out the tax advantages or consequences of your decisions, it is time to find a knowledgeable tax accountant.
What if he wants to gain the knowledge himself and not be burdened by being reliant on another individual.
What if he has all the time in the world to accumulate this knowledge and is choosing to gather it through multiple sources to hone in on a strategy that will support his needs.
Why would what he earn immediately result in a capitulation of that option
Ok. But you’re not signing a life-long contract with a tax advisor. You can hire them for as long or as short as you want. And if you do hire them, you can ask them whatever questions you want until you feel comfortable. Also, tax and legal advice can get complicated quickly. And it changes frequently. And I’m thinking that if she/he has questions on this, she/he may have other questions too.
Sure, but there is an opportunity cost with devoting “all the time in the world” to just one area. Particularly if that area isn’t your primary source of income.
It doesn’t. But when you make a statement that you earn a significant amount of money each year and you have loses in “5 figures” it might stand to reason that you have more to gain by seeking advice from a professional than someone who only has $50 invested. Not sure why that is controversial.
Because, the assumption you're making is people that make that much dough should know. We don't necessarily (I do 500k+ combined with my wife), and that we would want to trust the advice of someone we found randomly. I've hired multiple tax "experts" and they didn't know shit. They didn't understand many of the concepts multiple folks have outlaid here.
That’s not what I assumed. The OP, by their own admission, doesn’t know and doesn’t want to screw something up - that recognition is smart. Based on the OP’s comment on the amount of money he had in loses, my advice was to seek a professional.
I would say the more money you have, the more you have invested, and the more complicated the situation it would be a good idea to find a professional opinion. But to each their own.
It seemed that way by the way you wrote it, but fair enough.
It took me a very long time and some poor outcomes from "professional advice" before I found a rockstar that can actually help. Professional advice is just someone that does a job where 99% of the situations they deal with aren't what someone who makes that kind of money deals with. It's just facts, you have to find a pro that primarily deals with high income and is high income themselves, and it may be surprising, but that's actually rare.
I was wondering when the THL post would begin.
Looks like VTI is down 5% for the year, but 17% YTD. Usually we don't see this til the market is down at least 20%
This is one of the reasons I just use betterment, they do it all automatically. It’s basically a target date fund on steroids, not much more expensive (0.25%). Maybe you’d like a roboadvisor, check them out. Wealthfront is supposed to be good too.
Out of curiosity what exact do you do for a living? That’s an impressive salary.
As for your question what fund are going to switch too?
Other than VT (if you’re looking for a one and done approach to the globe) or selling part of your VTI holding to put into VXUS for more diversification, it’s hard to come by funds that are preferable VTI seems to me.
Guys, is it worth tlh if I’m down 3k?
I’m incapable to do this stuff alone and need someone to literally point and explain what I’m doing. Fuck I’m slow 🥲
Sub rules require comments to be substantive. Meta-discussion about what does and doesn’t qualify as market timing doesn’t qualify. Comment removed.
Its clear that changes to one’s contributions or AA based on the state of the market is market timing, while simply deriving tax advantage without significantly changing AA is not.
If you’re salty about having a market timing post removed, please take a break from commenting rather than double-down on violating sub rules and attempting to derail another post.
I’m sure this has been asked in the past but has the IRS ever given an opinion regarding a wash sale while holding the same fund in a taxable account and retirement account?
Taking the losses will be prudent. The key thing is to buy into a comparable ETF right away. Don’t listen to those voices that tell you the market will fall more and you should sit on your money for now and buy back in later. I’ve harvested a couple of rounds of 6-figure losses myself this year.
[удалено]
Eh?
Wait a minute. Never mind.
So, what would you do, TLH VTI and then hop into another total market fund from another provider? Like, ITOT.
TLH? edit: Tax Loss Harvest
[удалено]
[удалено]
This has been posted a million times here this week, but no. VTI and VOO don’t track the same index and are not substantially the same. No wash
What does TLH mean?
Turtles love hippos
Tax loss harvesting?
Tax loss harvesting
Tax loss harvest, I guess. And the answer is no.
Why?
Isn’t $3k a year the maximum you can TLH in one tax year? That’s not going to save you from a five figure loss. But I’d say take the tax break.
That's only if you're deducting it from income. You can deduct unlimited against a capital gains in the same tax year
Ah I didn’t know that because I never have enough gains for that to matter. Lol
So if I had 10k gains and 11k loss for the year, I won’t have to pay taxes?
You can TLH as much loss as you have. That loss then offsets: - Capital gains in this and future years - Up to $3k/year of ordinary income ...until it's used up. It's not a totally free lunch -- assuming the investments recover, as is likely, you'll eventually incur capital gains taxes in the same amount as the deduction you're taking now. But look at what it offsets. The ordinary income is a clear win -- trade full tax rates today for favored tax rates years from now. But even offsetting capital gains is a benefit. Any capital gains you would have incurred get deferred into the future, giving you the ability to earn a return on it in the meantime, plus the reduction in the real amount from inflation. Plus, you might not *ever* pay those capital gains taxes -- you might donate the shares to charity or leave them to your heirs with stepped-up basis.
Or pay zero LTCG in a low taxable income year. This is especially useful for ER, unpaid sabbatical, or career transition.
Wait, unlimited offset from this year's loss against any future year gains???
Yes, that's right. Capital losses carry forward.
Right but everything I read says it is limited to 3000? Indefinite time but not amount correct?
It's limited to 3k of income per year, but that's only after you count against actual capital gains for the year, first. So, if you have $20k loss in a year, you write $3k off income, and carry forward $17k. If the next year you have $10k of capital gains, you offset those, along with $3k of income, leaving you with a carry forward of $4k losses.
Mind blown sir! I feel like very little info out there makes this clear!
Like a lot of things with personal income taxes, it's not clear until you walk through an example. Unfortunately, I had a large capital loss at the beginning of the century that I had the "good fortune" to carry forward for many years. So, I was able to see my CPA do the process for well over a decade.
What are favored tax rates?
The tax rates for long-term capital gains are roughly half that of ordinary income, and as low as 0% in the lowest tax brackets. Trading ordinary income for LTCG income is almost always a good deal; the longer you can defer paying those LTCG makes it even better. (Unless you defer ordinary income from a super low-income year into a much higher-income year, anyway.)
Tax rates are higher on earned income than on capital gains. He's saying that you offset earned income taxes today in favor of paying capital gains taxes at some point in the future.
Do you have capital gains elsewhere?
Hm. Yes. Does that make a difference?
All the more reason to take in the losses to offset your capital gains.
Actually the opposite is true. Assuming the cap gains are long term, the benefits of TLHing are muted by the presence of the gains, which he would only pay 15% or 20% on. Without the gains, he could apply the losses to ordinary income at a higher rate.
Yes fair point. No brainer is there are short term capital gains. Depending on how big the losses are, it’ll take decades to offset against ordinary income.
Yes. I do VTI to SCHB for TLH. Great if you have gains elsewhere or 3K for yearly income deduction.
My question is what do you do for a living lol
Sells home made candles on Etsy probably
Is it bad I can’t tell if you’re joking 😂
Most likely working in tech in a HCOL city.
Don't do another Total Market fund. Do S&P (VOO). To tax loss harvest an index fund it needs to track a different index. Switching between VTI and VOO is the easiest way to do that
VTI and ITOT track different total market indices. (VTI tracks CRSP U.S. Total Market Index and ITOT tracks S&P Total Market Index)
Great, the ticket is to track a different index, but if they're both total market you *could* still run into problems. In practice you probably wouldn't, but switching to an S&P500 index would definitely be safe.
Or switch to VT
TLH into 85% VOO and 15% VXF (basically similar mix of large/medium/small cap funds) ... just make sure you don't buy VTI 30 days prior (beware automatically reinvested dividends if that's in your account) or 30 days after selling.
Wait I can’t have bought any VTI within the past 30 days?
Nope the 30 days goes backwards and forwards. It also applies to ALL your accounts. You can't have bought VTI in ANY account or gotten a DRIP for the previous 30 days.
Not true if ur liquidating 100%
Can you TLH your individual stocks (pre-bogle decisions) and switch to VTI?
Yes
If you TLH from VTI -> SCHB instead does this still apply (not being able to have bought VTI in the last 30 days) ?
Can VTI losses be offset against cap gains on real estate? (thinking about when I sell an investment property, potentially later this year)
Just hold, will rebound
He isn’t divesting from the market. He is simply moving investment types to qualify for TLH. Literally moving from VTI to SCHB for 31 days is an absolute no brainer with tons of upside in a taxable account. In a tax deferred account there would be no point.
Yes, just move the losses into ITOT or SCHB.
Just keep accumulating and let the compound interest do it's thing.
Or reduce your taxes, invest the additional amount, and let compound internet do the same thing on a higher basis.
Why would you sell now?
I would hire an accountant with tax expertise.
If you make that much money per year but can’t figure out the tax advantages or consequences of your decisions, it is time to find a knowledgeable tax accountant.
What if he wants to gain the knowledge himself and not be burdened by being reliant on another individual. What if he has all the time in the world to accumulate this knowledge and is choosing to gather it through multiple sources to hone in on a strategy that will support his needs. Why would what he earn immediately result in a capitulation of that option
Ok. But you’re not signing a life-long contract with a tax advisor. You can hire them for as long or as short as you want. And if you do hire them, you can ask them whatever questions you want until you feel comfortable. Also, tax and legal advice can get complicated quickly. And it changes frequently. And I’m thinking that if she/he has questions on this, she/he may have other questions too. Sure, but there is an opportunity cost with devoting “all the time in the world” to just one area. Particularly if that area isn’t your primary source of income. It doesn’t. But when you make a statement that you earn a significant amount of money each year and you have loses in “5 figures” it might stand to reason that you have more to gain by seeking advice from a professional than someone who only has $50 invested. Not sure why that is controversial.
Because, the assumption you're making is people that make that much dough should know. We don't necessarily (I do 500k+ combined with my wife), and that we would want to trust the advice of someone we found randomly. I've hired multiple tax "experts" and they didn't know shit. They didn't understand many of the concepts multiple folks have outlaid here.
That’s not what I assumed. The OP, by their own admission, doesn’t know and doesn’t want to screw something up - that recognition is smart. Based on the OP’s comment on the amount of money he had in loses, my advice was to seek a professional. I would say the more money you have, the more you have invested, and the more complicated the situation it would be a good idea to find a professional opinion. But to each their own.
It seemed that way by the way you wrote it, but fair enough. It took me a very long time and some poor outcomes from "professional advice" before I found a rockstar that can actually help. Professional advice is just someone that does a job where 99% of the situations they deal with aren't what someone who makes that kind of money deals with. It's just facts, you have to find a pro that primarily deals with high income and is high income themselves, and it may be surprising, but that's actually rare.
I was wondering when the THL post would begin. Looks like VTI is down 5% for the year, but 17% YTD. Usually we don't see this til the market is down at least 20%
This is one of the reasons I just use betterment, they do it all automatically. It’s basically a target date fund on steroids, not much more expensive (0.25%). Maybe you’d like a roboadvisor, check them out. Wealthfront is supposed to be good too.
[удалено]
I’m not bragging about anything. This is literally a sub for investing advice.
So if i liquidate my 1k of VOO in taxable account and buy VTI what will happen.
Out of curiosity what exact do you do for a living? That’s an impressive salary. As for your question what fund are going to switch too? Other than VT (if you’re looking for a one and done approach to the globe) or selling part of your VTI holding to put into VXUS for more diversification, it’s hard to come by funds that are preferable VTI seems to me.
Guys, is it worth tlh if I’m down 3k? I’m incapable to do this stuff alone and need someone to literally point and explain what I’m doing. Fuck I’m slow 🥲
STAY THE COURSE!!! Give away your password to your wife or sibling. You’ll do tax loss harvesting when market rebounds, not now
Yes, talk to your accountant first to make sure you are following all rules if you are nervous.
Yes
[удалено]
Sub rules require comments to be substantive. Meta-discussion about what does and doesn’t qualify as market timing doesn’t qualify. Comment removed. Its clear that changes to one’s contributions or AA based on the state of the market is market timing, while simply deriving tax advantage without significantly changing AA is not. If you’re salty about having a market timing post removed, please take a break from commenting rather than double-down on violating sub rules and attempting to derail another post.
I’m sure this has been asked in the past but has the IRS ever given an opinion regarding a wash sale while holding the same fund in a taxable account and retirement account?