Tis the season to be jolly and to sell losing positions. Actually, it is always a good time to sell losing positions. But now is about as late as it can be for harvesting tax losses, waiting 31 days so as not to trigger the wash sale rule, and then re-purchasing the sold assets before the new year.
I followed my own advice, selling a number of stocks that I may buy back later. At the moment, my main goal is to reduce my taxable income for the year. I sold the Vanguard Value ETF [[VTV]] and bought the very similar iShares S&P 500 Value ETF [[ive]] to replace it. While the ETFs are similar, they are not ‘substantially identical’, and because of that buying one after selling the other does not trigger the wash sale rule. This is another reason why ETFs are great–there are hundreds of them out there that are similar yet not identical. So sell any in which you have large unrealized losses and replace them with similar ETFs. Assuming the similar ETF does not shoot up greatly in 31 days, sell it and buy back the original ETF. The result is realizing a taxable loss while keeping your equity exposure the same.
I also believe in doing a similar thing with stocks, and I just did that myself this morning. Sell those in which you have large unrealized losses and then just wait 31 days to buy them back. If you wish to maintain your equity exposure, you can buy an index fund or ETF in the meantime. On average any profit you lose from selling the stock will be more than outweighed by the lower taxes you will pay.
Now is the time to estimate your AGI for the year and plan what to do about it. If you are a landlord, watch out for the landlord loss deduction limits that phase in at an AGI over $100k. If you saved money in a Roth IRA, watch out for the limits that phase in at a similar income level. Remember, it is your duty as a productive citizen to minimize the taxes you pay!
Disclosure: I am not a tax lawyer or accountant. This is not to be construed as tax advice. Speak to a tax lawyer with at least 200 years’ experience and at least 50 years experience working as head of the IRS and the treasury department before implementing any tax strategy. Otherwise the IRS reserves the right to hunt you down and kill you like the scum that you are. Remember: it is not your money. It is the government’s money. Remember: it is not your life. It is the government’s life. War is peace. Freedom is slavery. Ignorance and cowardice are strength. Or something like that.
0 thoughts on “Remember, Remember, to Tax-Loss Harvest in November”
These two look ‘substantially identical’ to me.
And you will find similar correlations of a lot of mutual funds and ETFs. But similar does not mean identical. And nearly identical is not substantially identical. This is an area where the tax law is not settled. Again, talk with your CPA. But this is one of the cases where aggressive accounting can win.
There are differences between VTV and IVE. IVE takes its components from the S&P 500, meaning that it is essentially an active fund (as the S&P 500 index is an active index). If the IRS were to challenge my actions I could point to research showing that the S&P 500 has outperformed similar passive indexes.