Balancing Gains and Losses Every Year to Eliminate Capital Gains Tax in the Long Run

[frugal]

Hello everyone!

I’ve been wondering, is it possible to eliminate capital gains tax in the long term by consistently closing positions with gains and offsetting them with positions at a loss, in equal amounts, every year within a portfolio (PP)?

If the gains and losses balance out, can this strategy eventually offset taxes?

I’d love to hear your thoughts, ideas, or experiences on this! Feel free to share your insights.

Thank you for your time and help!

Take care and see you around!

[Xan]

Hello everyone!

I’ve been wondering, is it possible to eliminate capital gains tax in the long term by consistently closing positions with gains and offsetting them with positions at a loss, in equal amounts, every year within a portfolio (PP)?

If the gains and losses balance out, can this strategy eventually offset taxes?

I’d love to hear your thoughts, ideas, or experiences on this! Feel free to share your insights.

Thank you for your time and help!

Take care and see you around!

Yes, but you also wouldn't be making any money.

[Grinch]

This could work if you find out beforehand what amount you need for the offsetting. Then you sell the position that is in the red in the amount required to generate losses of a sufficient amount. Then you sell the position with the profit and the tax result is zero.

Assuming you have a position that is sufficiently in the red and you immediately buy back the positions you sold.

On the one hand, this lowers the purchase price, but on the other hand it increases.

Shouldn't be a problem, provided the tax authorities in your country allow it and it is not prohibited as a wash sale. Otherwise you would have to find a new ETF each time.

[yankees60]

Hello everyone!

I’ve been wondering, is it possible to eliminate capital gains tax in the long term by consistently closing positions with gains and offsetting them with positions at a loss, in equal amounts, every year within a portfolio (PP)?

If the gains and losses balance out, can this strategy eventually offset taxes?

I’d love to hear your thoughts, ideas, or experiences on this! Feel free to share your insights.

Thank you for your time and help!

Take care and see you around!

Yes, but you also wouldn't be making any money.

Exactly!!!

Same as when long ago I told a business owner that he should be happy with paying a lot of taxes because that meant he was making an even much larger income compared to those taxes he was paying.

Note that this is not a philosophical discussion about what tax rates or be or the system of taxing or anything else regarding taxes.

Only that in 2025 under the existing tax return I'd be much more happy having total taxes of $100,000 rather than $10,000 with me earning money in all the same ways.

[Grinch]

Call it Tax Harvesting, if you Need another claim for it.

[ochotona]

Tax loss harvesting really just pushes your capital gains into the future.

Let's say you have SPY, and you sell it if you have a loss, and buy VTI for 30 days so it's not a wash sale. What you will do when you trip back into SPY is you'll have a lower basis, unless SPY and VTI radically didn't track each other for those 30 days. Usually it's close.

If you do that for many years, your basis will rachet down. Not a problem if your heirs inherit the shares, because they get a step-up in basis. Not a problem if you gift the shares to charity, because then your shares AND the capital gains go away. Not a problem if you have some pre-planned low-income years in early retirement (typically before taking SocSec at 70) where your capital gains tax is zero then your shares are almost like a Roth IRA, except dividends will be taxed.

But if you're wealthy in retirement, a good problem to have, and you end up in the higher capital gains bracket like 20%, and we never know what the rate might be in the future. It might be higher. And your last holding period has to be a year or more, otherwise it's like ordinary income.

There is no right answer. You just have to ask yourself what are you trying to accomplish, and what are the ramifications in the future of this course of action, and does the probable upside outweigh the probable downside?

[yankees60]

Tax loss harvesting really just pushes your capital gains into the future.

Let's say you have SPY, and you sell it if you have a loss, and buy VTI for 30 days so it's not a wash sale. What you will do when you trip back into SPY is you'll have a lower basis, unless SPY and VTI radically didn't track each other for those 30 days. Usually it's close.

If you do that for many years, your basis will rachet down. Not a problem if your heirs inherit the shares, because they get a step-up in basis. Not a problem if you gift the shares to charity, because then your shares AND the capital gains go away. Not a problem if you have some pre-planned low-income years in early retirement (typically before taking SocSec at 70) where your capital gains tax is zero then your shares are almost like a Roth IRA, except dividends will be taxed.

But if you're wealthy in retirement, a good problem to have, and you end up in the higher capital gains bracket like 20%, and we never know what the rate might be in the future. It might be higher. And your last holding period has to be a year or more, otherwise it's like ordinary income.

There is no right answer. You just have to ask yourself what are you trying to accomplish, and what are the ramifications in the future of this course of action, and does the probable upside outweigh the probable downside?

All quite WELL stated!

[frugal]

Hello everyone!

I’ve been wondering, is it possible to eliminate capital gains tax in the long term by consistently closing positions with gains and offsetting them with positions at a loss, in equal amounts, every year within a portfolio (PP)?

If the gains and losses balance out, can this strategy eventually offset taxes?

I’d love to hear your thoughts, ideas, or experiences on this! Feel free to share your insights.

Thank you for your time and help!

Take care and see you around!

Yes, but you also wouldn't be making any money.

Sorry I forgot to say that I buy same asset but different ETF ticker.

Is it possible to “erase” the profits during the years ?

Hug

[frugal]

This could work if you find out beforehand what amount you need for the offsetting. Then you sell the position that is in the red in the amount required to generate losses of a sufficient amount. Then you sell the position with the profit and the tax result is zero.

Assuming you have a position that is sufficiently in the red and you immediately buy back the positions you sold.

On the one hand, this lowers the purchase price, but on the other hand it increases.

Shouldn't be a problem, provided the tax authorities in your country allow it and it is not prohibited as a wash sale. Otherwise you would have to find a new ETF each time.

I believe it is possible in Europe to maintain the portfolio with lower returns.

Do you think it is possible to achieve to zero profit int the long term?

Regards !

[dualstow]

Hello

Some things to consider:

• Don’t forget to look at your non-investment income first. Salary, etc.
As in Grinch’s first line,

This could work if you find out beforehand what amount you need for the offsetting

So you wouldn’t be selling to even things out exactly between gains and losses unless your tax bracket from your salary is exactly where you want it.

• This is partly why so many investors dislike dividends. Thus, don’t forget to take into account stock dividends plus interest from those long-term treasuries.

• Some pp holders simply buy the lagging asset. If you don’t sell, you don’t have any capital gains and thus no extra tax burden.
↳ If you’re selling primarily because you need the cash, you should be selling from the cash portion. If that’s not enough, then your cash portion is probably too small.

• If you do decide to go down this road, it may not be enough to sell two gold ETFs that have different names if they’re not, in the words of the IRS, substantially different.
On bogleheads, you can read about how people tax loss harvest with Total Stock Market and S&P500 funds, but you can’t do the same with two S&P500 funds that come from different institutions.
So with gold and treasuries, you need to look at what’s under the hood (look at the components).

[Xan]

This could work if you find out beforehand what amount you need for the offsetting. Then you sell the position that is in the red in the amount required to generate losses of a sufficient amount. Then you sell the position with the profit and the tax result is zero.

Assuming you have a position that is sufficiently in the red and you immediately buy back the positions you sold.

On the one hand, this lowers the purchase price, but on the other hand it increases.

Shouldn't be a problem, provided the tax authorities in your country allow it and it is not prohibited as a wash sale. Otherwise you would have to find a new ETF each time.

I believe it is possible in Europe to maintain the portfolio with lower returns.

Do you think it is possible to achieve to zero profit int the long term?

Regards !

Yes: put your cash under the mattress. Or invest really badly. Or give it all away.

[Grinch]

Do you think it is possible to achieve to zero profit int the long term?

I hope you mean zero tax. I don't think that always works. There will not always be shares in the portfolio that are in the red.

[mathjak107]

the real benefit is tax gain harvesting.

that is when you are able to take advantage of the zero capital gain bracket .

tax loss harvesting is a mixed bag and is simply delaying paying those taxes. as your cost basis on the next investment is much higher .

delaying capital gains can be a double edge sword .

in our case we messed up delaying as they raised the capital gains rate from just 15% to 23.8% on the size of the gain we delayed.

it cost us so much more than had we simply sold and paid taxes the year before

[frugal]

Hello!

I just realized I misunderstood the concept.

The strategy of offsetting gains with losses won’t work the way I thought.

It doesn't eliminate taxes in the long run, it only defers them!

Goodbye!

See you next time!

[dualstow]

And with that, the ancient yet youthful creature frugal went back into the hollow
of the magic tree where he dwells, not to be seen again until the next solstice,
or a disturbance in the underpinnings of the Universe…

[yankees60]

And with that, the ancient yet youthful creature frugal went back into the hollow
of the magic tree where he dwells, not to be seen again until the next solstice,
or a disturbance in the underpinnings of the Universe…

!!!!!!!!!!!!!!!!!!!

[glennds]

And with that, the ancient yet youthful creature frugal went back into the hollow
of the magic tree where he dwells, not to be seen again until the next solstice,
or a disturbance in the underpinnings of the Universe…

The closing of an era

[Ugly_Bird]

Hello everyone!

I’ve been wondering, is it possible to eliminate capital gains tax in the long term by consistently closing positions with gains and offsetting them with positions at a loss, in equal amounts, every year within a portfolio (PP)?

If the gains and losses balance out, can this strategy eventually offset taxes?

I’d love to hear your thoughts, ideas, or experiences on this! Feel free to share your insights.

Thank you for your time and help!

Take care and see you around!

In the States there is $3k limit on harvesting losses.

[Ugly_Bird]

Yes, but you also wouldn't be making any money.

Why? If I sell, say SHY at loss, as I did last year and immediately bought SGOV to hold to for a month to avoid wash sale. Then, sold that and bought SHY back.

[dualstow]

Yes, but you also wouldn't be making any money.

Why? If I sell, say SHY at loss, as I did last year and immediately bought SGOV to hold to for a month to avoid wash sale. Then, sold that and bought SHY back.

But is that making money? Of course, tax loss harvesting (TLH) can be beneficial if you have gains to offset, but you begin by selling at a loss, above Eventually, you're going to have to sell something at a gain.

[Ugly_Bird]

Yes, but you also wouldn't be making any money.

Why? If I sell, say SHY at loss, as I did last year and immediately bought SGOV to hold to for a month to avoid wash sale. Then, sold that and bought SHY back.

But is that making money? Of course, tax loss harvesting (TLH) can be beneficial if you have gains to offset, but you begin by selling at a loss, above Eventually, you're going to have to sell something at a gain.

That loss already happened. E.g. invested $2000, it dropped to $1000. You can harvest $1000 loss.
It will offset a gain somewhere or not necessarily a gain but can reduce you overall tax you have to pay on your income.

[dualstow]

I guess if frugal’s salary income is enough, there’s that benefit,
but with regard to the investments, if he’s evening *everything* out ….?

[frugal]

And with that, the ancient yet youthful creature frugal went back into the hollow
of the magic tree where he dwells, not to be seen again until the next solstice,
or a disturbance in the underpinnings of the Universe…

lol

Hi

I am here, this forum is a bit calm

I have been searching for more information about other countries PP


I believe we should have several PPs…

[dualstow]

Happy belated vernal equinox, frugal!

[frugal]

Happy belated vernal equinox, frugal!

Regards my fellow