From Bogleheads we read:
by Outer Marker » Sun Nov 24, 2013 9:29 am
Due to the sale of some estate property, my accountant informs me
that I'll have a large capital loss -- approx $40,000. Due to the market run-up
I'm fortunate to have capital gains in Total Stock Market and other index funds
I hold in taxable. Is there any point in harvesting the "gains" so I
can use the capital loss this year and have a stepped-up basis. Or, should I
just take the $3,000 loss against ordinary income, and carry it forward for
loss against regular income for the next 14 years?
I am in AMT territory, but believe I can still take the capital loss against regular income, correct?
I am inclined just to use the loss slowly against regular income. I'm 47 now, expect to retire at 55, and can use the loss up in early retirement to pay zero tax as I begin to draw down equities to fund living expenses.
I am in AMT territory, but believe I can still take the capital loss against regular income, correct?
I am inclined just to use the loss slowly against regular income. I'm 47 now, expect to retire at 55, and can use the loss up in early retirement to pay zero tax as I begin to draw down equities to fund living expenses.
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by bsteiner » Sun Nov 24, 2013 9:37 am
Harvesting capital gains would allow you to diversify out of
appreciated positions without any current tax. Alternatively, you could carry
over the loss and gradually use it against ordinary income (except to the
extent you have capital gains in the future before you use it up against
ordinary income).
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by livesoft » Sun Nov 24, 2013 9:58 am
I am carrying over losses until retirement and not wasting them by
selling anything with a gain unless absolutely necessary such as paying college
tuition.
But my investments with gains are all index funds and things that fit into my asset allocation / location plan that I want to hold forever. I can see that if one had an appreciated investment that no longer fit their plan, that the realized loss may help one get out of it.
But my investments with gains are all index funds and things that fit into my asset allocation / location plan that I want to hold forever. I can see that if one had an appreciated investment that no longer fit their plan, that the realized loss may help one get out of it.
It's all about market timing, uh, I mean rebalancing, uh, I mean
opportunistic rebalancing, uh, I mean short-term opportunistic rebalancing due
to a short-term change in one's asset allocation.
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by Toons » Sun Nov 24, 2013 10:03 am
bsteiner wrote:Harvesting capital gains would allow you to diversify out of
appreciated positions without any current tax. Alternatively, you could carry
over the loss and gradually use it against ordinary income (except to the
extent you have capital gains in the future before you use it up against
ordinary income).
+1 Yes
"One does not accumulate but eliminate. It is not daily
increase but daily decrease. The height of cultivation always runs to
simplicity" –Bruce Lee
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by Steelersfan » Sun Nov 24, 2013 10:54 am
I generated a big capital loss position in 2008 and used some of it
to diversify out of a single stock position with significant capital gains. The
rest I'm chipping away at $3,000 a year of my regular taxable income. I expect
to do that as long as it takes to wind it down.
If I hadn't held that single position that I wanted out of, I would have just used the $3,000 a year for more years.
If I hadn't held that single position that I wanted out of, I would have just used the $3,000 a year for more years.
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by Outer Marker » Sun Nov 24, 2013 11:10 am
Thanks everyone. My situation is similar to livesoft's. Nothing I
want to rebalance out of. All my taxable funds fit my plan, and I can rebalance
with new contributions and within tax advantaged accts. I will just gradually
use against current income and bank the remainder until retirement.
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by dickenjb » Sun Nov 24, 2013 11:23 am
If netting a gain against the loss saves you the 15% or 20% LTCG
rate, but netting it against ordinary income saves you the 28% or 33% AMT rate,
the math is pretty easy.
Even taking into account that the present value of a $3000 loss 10 years from now is less than the $1000 future value, it would take a lot of discounting to match the $450 value of an avoided $3000 LTCG taxed at 15%.
Even taking into account that the present value of a $3000 loss 10 years from now is less than the $1000 future value, it would take a lot of discounting to match the $450 value of an avoided $3000 LTCG taxed at 15%.
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by neurosphere » Sun Nov 24, 2013 11:25 am
I'm wondering, what happens to unused losses at death? Wait a
minute, let me google that for myself...back in a minute...ok, found it.
http://www.irs.gov/publications/p544/ch ... k100072653
http://www.irs.gov/publications/p544/ch ... k100072653
Death of taxpayer. Capital losses cannot be carried over after a
taxpayer's death. They are deductible only on the final income tax return filed
on the decedent's behalf. The yearly limit discussed earlier still applies in
this situation. Even if the loss is greater than the limit, the decedent's
estate cannot deduct the difference or carry it over to following years.
And upon reading the answer, I'm reminded that I had previously known the answer, but forgot it.
So, does anyone who has carry forward losses worry that they will die and lose those losses forever? Obviously, if you are dead, you can't benefit from the losses, but perhaps your spouse or your estate/heirs could have benefited if you did not die prior to using up the loss carry forward. Dying prior to using up your losses is not very considerate.
So now I'm wondering about the treatment of capital losses for married persons when one spouse dies. I would have assumed that losses realized during a year when one is MFJ would be able to be carried forward by the surviving spouse, but it doesn't seem to be that simple. I think I'll have to research that question later. It's time for another cup of coffee.
Neurosphere
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by livesoft » Sun Nov 24, 2013 11:30 am
I am not worried about losses if I die since all our joint assets
would get a stepped up basis (at least in my state, maybe not in yours) which
would be a bigger benefit than losing the losses.
It's all about market timing, uh, I mean rebalancing, uh, I mean
opportunistic rebalancing, uh, I mean short-term opportunistic rebalancing due
to a short-term change in one's asset allocation.
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by sscritic » Sun Nov 24, 2013 11:33 am
On a joint return, the capital gains and losses of a husband and
wife are figured as the gains and losses of an individual.
Just claim the losses belonged to the survivor. The dead one never ever had a loss in the market.
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by Texas hold em71 » Sun Nov 24, 2013 12:12
pm
livesoft wrote:I am not worried about losses if I die since all our joint assets
would get a stepped up basis (at least in my state, maybe not in yours) which
would be a bigger benefit than losing the losses.
Would Vanguard or a broker automatically change the cost basis of shares in the account upon notification of a death? Or dies the survivor have to request it?
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by bsteiner » Sun Nov 24, 2013 12:53 pm
neurosphere wrote:... does anyone who has carry forward losses worry that they will
die and lose those losses forever? Obviously, if you are dead, you can't
benefit from the losses, but perhaps your spouse or your estate/heirs could
have benefited if you did not die prior to using up the loss carry forward.
Dying prior to using up your losses is not very considerate.
No. You can only use them against capital gains, plus $3,000 of ordinary income. However, if you have any appreciated assets, they'll get a stepped-up basis at death. So there's no benefit to take gains merely to use losses.
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by Outer Marker » Sun Nov 24, 2013 3:35 pm
dickenjb wrote:If netting a gain against the loss saves you the 15% or 20% LTCG
rate, but netting it against ordinary income saves you the 28% or 33% AMT rate,
the math is pretty easy. . .
Thanks, Dicken. Excellent point. I should have thought of that. This makes the right choice even more obvious.
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