Tax Loss Harvesting Support Group

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Tyler
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Re: Tax Loss Harvesting Support Group

Post by Tyler » Mon Apr 22, 2019 11:47 am

Why not both? After all, there's no point to tax lost harvesting except to offset gains elsewhere. I always try to keep my portfolio rebalanced while minimizing taxes, which usually involves:

1) Harvesting losses
2) to offset as much gains as I can
3) to rebalance my portfolio as much as possible
4) while keeping my reported gains in any one year in the 0% LTCG bracket (YMMV based on your tax bracket)

Do that right, and it's possible to avoid taxes for years at a time.
Last edited by Tyler on Mon Apr 22, 2019 4:13 pm, edited 1 time in total.
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Re: Tax Loss Harvesting Support Group

Post by pmward » Mon Apr 22, 2019 11:52 am

Yeah, I think like Xan mentioned it's likely to even out in the end. You have a little leverage in the short term in that 15% of your gains are technically uncle Sam's money, but if rates stay the same 15% of your gains periodically should equal to 15% of your gains later.

I also think an argument can be made for diversifying tax strategies. I assume most of us already have a substantial amount of traditional 401k holdings that are already filling the role of punting taxes until retirement. We have Roth IRA's to pre-pay future taxes. Then if you sell some LTCG as you go along in your taxable you also have some periodic tax realization.

The real questions one needs to ask are: 1) do you believe it is possible for LTCG to go down? 2) do you believe it is possible for LTCG to go up? My own subjective opinion on the matter is that #1 is virtually impossible and #2 is plausible. So I feel probability aligns with realizing LTCG when possible.

Now that doesn't mean that everyone should realize all their LTCG every year. It simply means that most people should sit down every year around Nov/Dec (preferably with an accountant) and ask the question of whether it makes sense all things considered to realize some LTCG on that particular year? If so, how much? I think that the popular assumption that it is always best to postpone taxes as long as possible is... well... not always "best" and can potentially be harmful. There are times it makes sense to postpone LTCG. There are also times when it doesn't hurt to pay some (or all) LTCG and optimize your cost basis.

One thing those of us that follow a PP like portfolio also have going for us is that we should often have one or two assets we can harvest losses in most years to offset gains, so that is a nice side benefit of this style of investing.
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Re: Tax Loss Harvesting Support Group

Post by pugchief » Mon Apr 22, 2019 12:27 pm

pmward wrote:
Mon Apr 22, 2019 9:32 am
drumminj wrote:
Mon Apr 22, 2019 9:24 am
pmward wrote:
Mon Apr 22, 2019 9:17 am
In his opinion it's better to pay your taxes now at the guaranteed 15% rate than risk being stuck with too much in gains to sell when/if they jack the rates up.
So sell now, re-buy, and pay the tax?
Pretty much, yeah. All my taxable holdings are ETF's so it's basically place a sell order, then 10 seconds later placing a buy order (after setting aside ~15% of the gain). Obviously one would always take any losses they can to balance it out, and years where something exceptional is going on it might not make sense to do it (like this year for instance I'm vesting for a very large chunk of company stock that will generate a one time windfall). But on years that I can, I do strategically lock in some long term capitol gains. I tend to agree that the left is looking to redistribute wealth, and the easiest place to do that is on capitol gains. If I do it every year or two it is painful, but not devastating. Imagine what would happen if tomorrow they announced that next year they were bumping to a 25% rate. How painful of a decision would it be for someone to decide whether or not to take long term cap gains now at 15% or wait if someone had years and years worth of gains built up? He is basically trying to avoid his clients being in that position.
This makes no sense. If you want to take gains now to avoid higher taxes later, you should never sell assets at a loss for harvesting or tax reasons (the only reason would be because you no longer wish to own that asset) until they actually raise the tax rate in the future. Otherwise it defeats the purpose of tax gain harvesting.

And btw, it's capitAl gains.
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Re: Tax Loss Harvesting Support Group

Post by pmward » Mon Apr 22, 2019 12:40 pm

pugchief wrote:
Mon Apr 22, 2019 12:27 pm
pmward wrote:
Mon Apr 22, 2019 9:32 am
drumminj wrote:
Mon Apr 22, 2019 9:24 am


So sell now, re-buy, and pay the tax?
Pretty much, yeah. All my taxable holdings are ETF's so it's basically place a sell order, then 10 seconds later placing a buy order (after setting aside ~15% of the gain). Obviously one would always take any losses they can to balance it out, and years where something exceptional is going on it might not make sense to do it (like this year for instance I'm vesting for a very large chunk of company stock that will generate a one time windfall). But on years that I can, I do strategically lock in some long term capitol gains. I tend to agree that the left is looking to redistribute wealth, and the easiest place to do that is on capitol gains. If I do it every year or two it is painful, but not devastating. Imagine what would happen if tomorrow they announced that next year they were bumping to a 25% rate. How painful of a decision would it be for someone to decide whether or not to take long term cap gains now at 15% or wait if someone had years and years worth of gains built up? He is basically trying to avoid his clients being in that position.
This makes no sense. If you want to take gains now to avoid higher taxes later, you should never sell assets at a loss for harvesting or tax reasons (the only reason would be because you no longer wish to own that asset) until they actually raise the tax rate in the future. Otherwise it defeats the purpose of tax gain harvesting.

And btw, it's capitAl gains.
I do not think it's a binary option. I think that the whole point is cost basis management. Sometimes it makes sense to harvest a loss in one asset to offset a harvest of gain in another regardless of whether someone wants to be net positive, equal, or negative on their capitAl gains taxes that year. Let's also not forget that short term, long term, and collectables gains can be placed against each other if done in the proper order, so there is further optimization that can be had here, even within a single asset class.
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Re: Tax Loss Harvesting Support Group

Post by mathjak107 » Tue Apr 23, 2019 3:29 am

Xan wrote:
Mon Apr 22, 2019 10:42 am
drumminj wrote:
Mon Apr 22, 2019 10:31 am
That's definitely an interesting idea, though arguably you have less left/invested after paying the taxes, no? So while you may avoid that 25% tax rate, you likely have less gains in the end?

Not arguing against, just thinking through the strategy. Personally my biases align with avoiding future tax liabilities, as I expect taxes to only go up (esp cap gains, as you point out)
forget worrying about whether tax rates will be higher or lower for the most part . there are so many major issues tied to your taxable retirement income whether rates change or not .

having just retired and learning all i could far to late about retirement i realized the thinking above about taking the tax deduction now was a huge mistake because i was missing all the other things i did not know about until to late ..

will your social security get taxed with roths or not is a major issue , don't know ? err on the side of caution and shoot for as much tax free income in retirement as you can because getting tens of thousands of dollars taxed a year at 85% when you didn't have to get any taxed is a huge issue .. .

will you retire at 62 and need medical insurance ? a subsidized aca plan is tied to taxable income . had i had roth income i would be getting a few thousand a year from 62 to 65 in medical insurance subsidy .

if your taxable income goes over certain levels you pay more for medicare - as much as almost 2x .

there are aca tax surcharges if your income is high enough as well and those are in addition to paying more for medicare . .

what will happen when those rmd's kick in at 70-1/2 ? how will your tax rate jump and will any of the above trigger points be hit ?

what will you do with the money you have to take out in rmd's ? if you are going to reinvest it in a taxable account then you get hit there tax wise forever going forward . a roth would have all future gains and distributions tax free with no rmd's . that reinvested rmd mone you had to take by not having roths is now going to be taxed forever going forward from 70-1/2 on .


the biggest question is what does your job potential look like .

if like most careers you start out in very low tax brackets and ramp up over decades higher and higher odds are your average tax rate will be lower than your final years working .

folks ,make this mistake all the time , they judge by looking at only their final years income and go once the pay checks stop we will be in a lower tax bracket .

but that isn't the whole story . it is all about what was your careers lifetime average tax bracket ?

odds are it lower than your final years and you will actually be in higher tax bracket at retirement then your long term average making the roth a clear winner .

just this fact alone can give yo 20% more spendable cash in retirement making a roth the clear cut winnr even if tax rates stay the same or even go down .

unless you enter the work force already in the highest brackets like a doctor or lawyer then there is a good chance roths will be a slam dunk in the end .
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Re: Tax Loss Harvesting Support Group

Post by sophie » Tue Apr 23, 2019 6:31 am

It's easy to decide to take capital gains when you get to do it at the 0% rate, but things get trickier if you're subject to the 15% rate. What if in future you expect to have a window where you can take the gains at a 0% rate? You'd be missing out on that not to mention the power of tax deferral. It's possible that the extra boost from alternating between tax gain and tax loss harvesting (to get that $3,000 offset to ordinary income every other year) might work out to be a better deal, but be careful about that.

If the capital gains tax rate is increased, there will be enough warning that you can choose to take the gains the year before at the lower rate. In fact, I bet there will be a tsunami of selling for exactly that reason, and the resulting news headlines will be hard to miss. So you won't hurt yourself by waiting.
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Re: Tax Loss Harvesting Support Group

Post by pmward » Tue Apr 23, 2019 9:13 am

sophie wrote:
Tue Apr 23, 2019 6:31 am
It's easy to decide to take capital gains when you get to do it at the 0% rate, but things get trickier if you're subject to the 15% rate. What if in future you expect to have a window where you can take the gains at a 0% rate? You'd be missing out on that not to mention the power of tax deferral. It's possible that the extra boost from alternating between tax gain and tax loss harvesting (to get that $3,000 offset to ordinary income every other year) might work out to be a better deal, but be careful about that.
If you are going to have a window of time you can take 0%, you would likely know that in advance, and that would then be a part of your strategy so you would postpone taking gains. Like I said, it's not a hard rule, it's something that needs to be looked at on a year by year basis. Most people don't even ask the question "should I take capital gains this year?" All I'm saying is people should start asking that question every year.
sophie wrote:
Tue Apr 23, 2019 6:31 am
If the capital gains tax rate is increased, there will be enough warning that you can choose to take the gains the year before at the lower rate. In fact, I bet there will be a tsunami of selling for exactly that reason, and the resulting news headlines will be hard to miss. So you won't hurt yourself by waiting.
That's all well and good for someone with a small portfolio. If someone has a million dollars in LTCG that might not be an easy decision to make, especially if they risk losing some tax credits by it pushing their AGI up to the point that they are ineligible. So yes, it can hurt them by waiting.
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Re: Tax Loss Harvesting Support Group

Post by mathjak107 » Tue Apr 23, 2019 9:27 am

it happened to us . our senior partner finally got a buyer and sold the lease rights we owned in manhattan to an investor group a year later and the increase killed us as the rate went to 23.80% from 15% ..plus it triggered the max premium in medicare since medicare looks back 2 years to set your premium ..so we were not on medicare yet in 2014 when we had the sale ... but in 2016 we were so it triggered the irma surcharges ..

we owned a 10% stake and the lease rights sold to the ashkenazie group , a large developer in nyc for 18 million dollars .

i appealed it because we just retired that year and i won and got the premium reduced but had it not been my first year in retirement they would not have rolled me back ...
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Re: Tax Loss Harvesting Support Group

Post by sophie » Wed Apr 24, 2019 7:28 am

mathjak107 wrote:
Tue Apr 23, 2019 9:27 am
it happened to us . our senior partner finally got a buyer and sold the lease rights we owned in manhattan to an investor group a year plus it triggered the max premium in medicare since medicare looks back 2 years to set your premium ..so we were not on medicare yet in 2014 when we had the sale ... but in 2016 we were so it triggered the irma surcharges ..
Wow, that is an important piece of info. How long did the surcharges last?
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Re: Tax Loss Harvesting Support Group

Post by mathjak107 » Wed Apr 24, 2019 11:28 am

1 year
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