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Harvest Season (tax losses)

#1
I usually go through things in November, looking for tax losses. Are the bottoms in, or almost in? I don't know. Anyway, look for losing tax lots to sell. You can...
 
  1. Sell, and buy back 31 or more days later

  2. Buy in preparation for selling a losing tax lot 31 or more days later

  3. Say goodbye to a loser.

  4. Move to a similar investment. e.g., sell some  GOOG you bought at 1270 and buy GOOGL. Sell SPY that you bought at $291  and buy IVV.
 
Do specific share identification when you sell if you are not looking to sell your oldest lots.
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#2
I think about harvesting losses throughout the year, but it is a good reminder as the year-end approaches.
 
The following summarizes my understanding of how capital gains are treated:
 
1. Capital Gain Distributions from Mutual funds/ETFs:
a) Short Term Capital Gain Distributions - these are treated as ordinary - not qualified - dividends.  As such they attract ordinary income tax rates.  They cannot be offset by capital losses.
 
b) Long Term Capital Gain Distributions - these are added to other long term capital gains, are thus generally subject to favorable tax treatment for investments. They can be offset by capital losses.
 
2. Capital Gains and losses from Sales of securities
a) Both Aggregate SHORT Term Capital GAINS and Aggregate LONG Term Capital GAINS are POSITIVE
i. Short Term Capital Gains are subject to ordinary income tax rates
ii. Long Term Capital Gains are subject to favorable tax treatment for investments.
 
b) Both Aggregate SHORT Term Capital LOSSES and Aggregate LONG Term Capital LOSSES - For Married Filing jointly, up to $3000 of aggregate losses can be used to offset ordinary income.  The short term losses are used first.  So, in this case, there is up to a $3000 reduction in income subject to ordinary income tax in the current tax year.  To the extent that the losses cannot be fully utilized, the remainder over $3000 can generally be carried into the next year (by category: long and/or short) for determining future capital gains and losses.
 
c) Aggregate Positive SHORT Term GAINS and Aggregate LONG Term LOSSES
i. Aggregate Overall GAINS - The long term losses are subtracted from the short term gains and the net remaining short term gain is subject to ordinary income tax rates.
ii. Aggregate Overall LOSSES - Up to $3000 of aggregate losses can be used to offset ordinary income in the current tax year.  Any remaining Long term LOSSES can be carried into the next year for determining future capital gains and losses.
 
d) Aggregate Positive LONG Term GAINS and Aggregate SHORT Term LOSSES
i. Aggregate Overall GAINS - The short term losses are subtracted from the long term gains and the net remaining long term gain is subject to favorable investment tax rates.
ii. Aggregate Overall LOSSES - Up to $3000 of aggregate losses can be used to offset ordinary income in the current tax year.  The remaining Short term losses can be carried into the next year for determining future capital gains and losses.
 
Memo - Note that short term capital losses from the sale of mutual funds held less than 6 months are treated as long term capital losses to the extent of any long term capital gain distributions received from that fund.
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#3
Living Life - hanks for starting the Tax-loss harvesting discussion.

Similar to PizzaSteve, I generally look for tax-loss opportunities throughout the year. Firstly the opportunities can arise anytime during the year. Secondly, institutional investors ramp-up tax-focused trades towards the end of the year and that activity may move the prices more unpredictably than during the year. I typically have short-term gains every year due to my option trades. So taking a loss is always useful in reducing the tax bill.

 
I have had more success with "swap" trades (#4 on your list) than with anticipatory trades on same security (#1 or #2 on your list). Most of my big investments are in broad funds - so it's generally easy to find a "similar" fund to swap with. At times, the replacement fund isn't the most ideal one (higher expense, considerable difference in exposure, etc.) - but I'm fine with that because it's only temporary and the original and new funds are generally tightly correlated in short-term. I use the animation tool in stockcharts.com to verify that the 2 candidates are indeed moving in lock-step by almost the same amount over a 30-day period. Some recent examples are: swapping FLGB Low-cost) with EWU (higher-cost), Swapping XNTK (equal-weight) with IGM. The latter is a non-typical swap as the funds are quite different. I made this move because I couldn't find a better substitution and also I may actually own both the funds eventually.

 

A few things I keep in mind are:

- the distribution dates for the selling fund as well as the buying fund

- holding period in terms of dividend qualification

 

When it comes to individual stocks, I have to use the "double-down on price dip to sell after 30 days" technique. This works as long as the stock has stayed about the same after the wash sale period. If the price goes back up to the purchase price of the original lots - then the loss can't be captured. If the price goes down further, there is a strong urge to "triple-down" and this conflicts with the original goal of holding the stock by the pre-determined amount. IVZ is a notorious example for me. I purchased at about 28 or so, and doubled-down on 25 with the hope to sell the original lot after 30 days. The stock is now 20. It's a stock I want to own in a limited amount, but not something that I'd get over-exposed to. I've already captured enough tax-loss this year to offset my ST gains - so I'm holding my double position at the moment.

 
I almost never use the "sell now and buy after 30 days" technique. I don't want to risk staying out of it and missing any gains.
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#4
Unless the market (stocks or bonds) really craps all over itself in the next 2.5 months, I fortunately do not have anything to harvest.
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