From what I understand, to really reap the rewards from an investment standpoint, I would have to invest whatever deduction I get come tax time and not just pocket the deduction? Otherwise, it's just extra money in my wallet and not helping my investment account grow, right?
Posts: 65
Joined: Thu Jan 23, 2014 9:13 pm
That gets rather complex once past the first paragraph but all that is probably more than you need to know.
The key point about TLH is that by selling at a loss you have "locked in" a future (string of) tax deductions.
The second point is that to claim those losses you cannot buy back the same, or substantially the same, investment within 30 days, But buying back anything is not required in order to have "harvested" that loss for tax purposes. For example, suppose you want a $10K downpayment for a car purchase. You could sell $10K of losing investments and go buy that car. The 1099 you get from the sale does not know or care that you consider it a TLH transaction; you get to deduct those losses. If instead of a car you immediately buy a substantially different investment (say you decided to change your AA) you still have that very same 1099 to use in offsetting taxes.
If you wait 31 days and buy back the very same (or substantially the same) investment you STILL have that 1099 and can use it to offset taxes and are still invested the same as before, assuming a small change in price over the 31 days.
Some people may say (or maybe not; I don't know) that it isn't TLH unless you go through the whole process, right through buying back the same investment. To me simply selling at a loss counts.
In 2008 I sold and immediately rebalanced. The only thing that surprised me about that was I could use the loss to offset up to $3K in regular income as well as cap gains. I had never heard the term TLH at that point and it wasn't until a few years later that I realized I had inadvertently done TLH.
P.S. About the "substantial" scattered about in the above... I don't know how substantial that needs to be.
Last edited by bertilak on Mon Dec 29, 2014 9:53 am, edited 2 times in total.
I have a strong moral sense - by my standards. | -- Rex Stout
Posts: 3515
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi
Well, the IRS uses the term "substantially identical" which is more identical than substantially the same. Thus, one can buy back substantially the same investment, but not a substantially identical investment.
Everybody on the forum is exchanging directly from VTIAX into VFWAX --- except for those folks who are exchanging from VFWAX into VTIAX.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
by rkhusky » Mon Dec 29, 2014 10:33 am
bertilak wrote:For example, suppose you want a $10K downpayment for a car purchase. You could sell $10K of losing investments and go buy that car.
Doesn't seem quite right, unless you had a complete loss on the investment and your marginal tax rate is 100%.
Posts: 1885
Joined: Thu Aug 18, 2011 8:09 pm
rkhusky wrote:
bertilak wrote:For example, suppose you want a $10K downpayment for a car purchase. You could sell $10K of losing investments and go buy that car.
Doesn't seem quite right, unless you had a complete loss on the investment and your marginal tax rate is 100%.
Why does it need to be a complete loss?
I have a strong moral sense - by my standards. | -- Rex Stout
Posts: 3515
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi
by island » Mon Dec 29, 2014 12:48 pm
livesoft wrote:Well, the IRS uses the term "substantially identical" which is more identical than substantially the same. Thus, one can buy back substantially the same investment, but not a substantially identical investment.
Everybody on the forum is exchanging directly from VTIAX into VFWAX --- except for those folks who are exchanging from VFWAX into VTIAX.
"Exchanging directly" meaning doing it immediately in the same transaction period, no need to wait at all?
Posts: 747
Joined: Tue Jul 23, 2013 1:45 pm
by island » Mon Dec 29, 2014 1:55 pm
llessac15 wrote:This is my first year with a taxable investment account and it's through Vanguard. I have the VTIAX (Total International Stock) fund and have lost $1038 this year. To tax loss harvest, do I just sell it and then re-buy it in 30 or more days? Come tax time, will Vanguard show this sale on a 1099 form or will I just have to show the accountant the proof of a loss?
From what I understand, to really reap the rewards from an investment standpoint, I would have to invest whatever deduction I get come tax time and not just pocket the deduction? Otherwise, it's just extra money in my wallet and not helping my investment account grow, right?
I'm in the same boat as OP with the same fund and have a related question if you don't mind.
So sounds like OP has held this fund for less than a year, I as well, which means it's a short term loss, correct?
If TLHing the short term loss and have no short term gains to write it off against then It has to be used to counter long term gains either from a long term capital gains distribution or sale of shares with long term gains?
Or can it be used to offset up to 3K of income?
My understanding, and may be wrong, is it's best to offset short term gains with short term losses, long term with long term or better yet, offset 3K of ordinary income. If so, then what happens if you only have a short term loss and only long term gains? Still better to realize the loss (in this case VTIAX)?
Sorry if this is a really basic question, but TLH is a new concept for me and the rules are still fuzzy even though I've been reading about it. Every additional real world example is helpful. Thanks.
Last edited by island on Mon Dec 29, 2014 2:02 pm, edited 1 time in total.
Posts: 747
Joined: Tue Jul 23, 2013 1:45 pm
by rkhusky » Mon Dec 29, 2014 2:01 pm
bertilak wrote:
rkhusky wrote:
bertilak wrote:For example, suppose you want a $10K downpayment for a car purchase. You could sell $10K of losing investments and go buy that car.
Doesn't seem quite right, unless you had a complete loss on the investment and your marginal tax rate is 100%.
Why does it need to be a complete loss?
In order to realize a $10K capital loss from selling $10K of a losing investment, you would have to have a complete loss.
Posts: 1885
Joined: Thu Aug 18, 2011 8:09 pm
rkhusky wrote:
bertilak wrote:
rkhusky wrote:
bertilak wrote:For example, suppose you want a $10K downpayment for a car purchase. You could sell $10K of losing investments and go buy that car.
Doesn't seem quite right, unless you had a complete loss on the investment and your marginal tax rate is 100%.
Why does it need to be a complete loss?
In order to realize a $10K capital loss from selling $10K of a losing investment, you would have to have a complete loss.
I didn't mean a $10K capital loss. I just meant selling $10K to use as (for example) a downpayment on a car. If that sale is at a loss (however big or small) that loss can be used to reduce taxes. If you need the money, maybe looking for a sale that is a loss is the right thing to do.
I have a strong moral sense - by my standards. | -- Rex Stout
Posts: 3515
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi
island wrote:So sounds like OP has held this fund for less than a year, I as well, which means it's a short term loss, correct?
Yes.
If TLHing the short term loss and have no short term gains to write it off against then It has to be used to counter long term gains either from a long term capital gains distribution or sale of shares with long term gains?
Or can it be used to offset up to 3K of income?
Losses must be used in the following order:
First:
short losses cancel short gains
long losses cancel long gains
Second:
If any gains remain, leftover losses of the other flavor cancel those.
Third:
If any losses still remain after canceling all capital gains, then the next $3000 of them are canceled against ordinary income.
Fourth:
If losses still remain, they are carried over to next year and the algorithm repeats.
Edit: This post seems to have generated some confusion; see the attempts at clarification below.
Last edited by House Blend on Mon Dec 29, 2014 10:04 pm, edited 1 time in total.
Posts: 2507
Joined: Fri May 04, 2007 1:02 pm
island wrote:
livesoft wrote:Well, the IRS uses the term "substantially identical" which is more identical than substantially the same. Thus, one can buy back substantially the same investment, but not a substantially identical investment.
Everybody on the forum is exchanging directly from VTIAX into VFWAX --- except for those folks who are exchanging from VFWAX into VTIAX.
"Exchanging directly" meaning doing it immediately in the same transaction period, no need to wait at all?
Yes, definitely. I think most mutual fund web sites have an "exchange" button.
Perhaps a Boglehead with an inside track at Vanguard could find out how much money in VTIAX* was exchanged into VFWAX and vice versa in December.
*Investor and Admiral share classes.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
House Blend wrote:
island wrote:So sounds like OP has held this fund for less than a year, I as well, which means it's a short term loss, correct?
Yes.
If TLHing the short term loss and have no short term gains to write it off against then It has to be used to counter long term gains either from a long term capital gains distribution or sale of shares with long term gains?
Or can it be used to offset up to 3K of income?
Losses must be used in the following order:
First:
short losses cancel short gains
long losses cancel long gains
Second:
If any gains remain, leftover losses of the other flavor cancel those.
Third:
If any losses still remain after canceling all capital gains, then the next $3000 of them are canceled against ordinary income.
Fourth:
If losses still remain, they are carried over to next year and the algorithm repeats.
Ok, so this is interesting to me as I am learning about TLH. So the only way to offset $3,000 in ordinary income is to go through this 'waterfall' (if you have anything to offset the loss against after selling short/long gains)? If I don't want to sell any of my positive gainers - either short or long - then there's nothing for me to harvest on the loser? I was under the impression that you could simply offest the loss on your ordinary income, without having to sell any positive gains first.
So, if you first need to sell positive gainers and go through the above process, that means TLH goes hand in hand with rebalancing?
Last edited by eloshine on Mon Dec 29, 2014 8:11 pm, edited 1 time in total.
Posts: 22
Joined: Thu Dec 04, 2014 7:16 pm
Seems to be some confusion here. One must sell losers to harvest the loss. One doesn't have to do anything with the gainers. For instance, if there are zero gains, then no gains are cancelled since they do not exist and "First" and "Second" do not apply.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
House Blend wrote:
island wrote:So sounds like OP has held this fund for less than a year, I as well, which means it's a short term loss, correct?
Yes.
If TLHing the short term loss and have no short term gains to write it off against then It has to be used to counter long term gains either from a long term capital gains distribution or sale of shares with long term gains?
Or can it be used to offset up to 3K of income?
Losses must be used in the following order:
First:
short losses cancel short gains
long losses cancel long gains
Second:
If any gains remain, leftover losses of the other flavor cancel those.
Third:
If any losses still remain after canceling all capital gains, then the next $3000 of them are canceled against ordinary income.
Fourth:
If losses still remain, they are carried over to next year and the algorithm repeats.
Where do dividends (mine are taxed at 15%) fall in that order?
Posts: 9
Joined: Tue Aug 19, 2014 7:53 pm
DIvidends don't fall in that order. That's like asking, "Where does my salary fall in that order?" or "Where does the interest from my savings account fall in that order?"
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
livesoft wrote:Seems to be some confusion here. One must sell losers to harvest the loss. One doesn't have to do anything with the gainers. For instance, if there are zero gains, then no gains are cancelled since they do not exist and "First" and "Second" do not apply.
I think this was my original thought then. So if I have $3,000 in losses by selling a loser, but don't sell any of the winners, then I can offset the $3,000 in loss against my ordinary income. I hope I have this correct?
Posts: 22
Joined: Thu Dec 04, 2014 7:16 pm
by jjunk » Mon Dec 29, 2014 8:42 pm
Is there a dollar increment where you fall out of this loop? For instance, here's my situation this year: I have short term gains of 3k, short term losses of 10k and 40k in long term gains. Am I correct that in the end, I'll effectively pay tax on 33k in long term?
Posts: 106
Joined: Fri Aug 24, 2012 9:52 pm
eloshine wrote:
livesoft wrote:Seems to be some confusion here. One must sell losers to harvest the loss. One doesn't have to do anything with the gainers. For instance, if there are zero gains, then no gains are cancelled since they do not exist and "First" and "Second" do not apply.
I think this was my original thought then. So if I have $3,000 in losses by selling a loser, but don't sell any of the winners, then I can offset the $3,000 in loss against my ordinary income. I hope I have this correct?
You have this correct.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
jjunk wrote:Is there a dollar increment where you fall out of this loop? For instance, here's my situation this year: I have short term gains of 3k, short term losses of 10k and 40k in long term gains. Am I correct that in the end, I'll effectively pay tax on 33k in long term?
Yes, you will pay tax on the $33K net long-term gain.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
jjunk wrote:Is there a dollar increment where you fall out of this loop? For instance, here's my situation this year: I have short term gains of 3k, short term losses of 10k and 40k in long term gains. Am I correct that in the end, I'll effectively pay tax on 33k in long term?
If these are all realized gains/losses then yes. Taxes are a penalty for frequent stock trading. Buy an index fund and hold it next time.
Also, something about the way you ask makes me think I should add that if these are unrealized paper gains/losses then nothing taxable has happened.
JW
Retired at Last
Posts: 4186
Joined: Sun Dec 16, 2007 12:25 pm
by island » Mon Dec 29, 2014 9:56 pm
livesoft wrote:
eloshine wrote:
livesoft wrote:Seems to be some confusion here. One must sell losers to harvest the loss. One doesn't have to do anything with the gainers. For instance, if there are zero gains, then no gains are cancelled since they do not exist and "First" and "Second" do not apply.
I think this was my original thought then. So if I have $3,000 in losses by selling a loser, but don't sell any of the winners, then I can offset the $3,000 in loss against my ordinary income. I hope I have this correct?
You have this correct.
Hmmmm ok now I'm confused again. Here's a specific example from my own situation.
One of my taxable accounts from long held American Funds has about 25K in long term capital gains this year. I know II'll be paying taxes on that.
My only capital loss is a few thousand short term loss from the Vanguard international Index (VTIAX).
If I TH, I sell the Vanguard VTIAX, to offset the capital gain in the Am Funds, but I don't have to sell any of the Am Funds, correct?
Thank you for your help.
Posts: 747
Joined: Tue Jul 23, 2013 1:45 pm
You will have to tell me if the capital gain in the Am funds is a realized capital gain or not. If it is not a realized capital gain, was it a distribution of $25,000 that is labelled as a long-term capital gain?
Last edited by livesoft on Mon Dec 29, 2014 10:02 pm, edited 1 time in total.
This signature message sponsored by LadyGeek. 
Posts: 35458
Joined: Thu Mar 01, 2007 8:00 pm
House Blend wrote:Losses must be used in the following order:
First:
short losses cancel short gains
long losses cancel long gains
Second:
If any gains remain, leftover losses of the other flavor cancel those.
Third:
If any losses still remain after canceling all capital gains, then the next $3000 of them are canceled against ordinary income.
Fourth:
If losses still remain, they are carried over to next year and the algorithm repeats.
The above explanation seems to have confused people, so for clarity, let me add that all losses and gains under discussion refer to realized losses and gains; i.e., the result of you selling previously purchased shares.
For further confusion, you can also have realized long term gains without selling any shares if your fund has a long term cap gain distribution. (Rare for Vanguard index funds; not rare for active funds or index funds from other providers.) Whereas, if your fund has a short term cap gain distribution, those count as ordinary (dividend) income, not short term cap gains.
Posts: 2507
Joined: Fri May 04, 2007 1:02 pm
by jjunk » Mon Dec 29, 2014 11:04 pm
JW Nearly Retired wrote:If these are all realized gains/losses then yes. Taxes are a penalty for frequent stock trading. Buy an index fund and hold it next time. Also, something about the way you ask makes me think I should add that if these are unrealized paper gains/losses then nothing taxable has happened. JW
Yes, these are all realized already for 2014. I was moving funds to indexes for better efficiency over what I held previously in my taxable accounts (Wellington/Wellesley). Thanks all for the confirmation of my understanding.
Posts: 106
Joined: Fri Aug 24, 2012 9:52 pm
by island » Tue Dec 30, 2014 12:04 am
livesoft wrote:You will have to tell me if the capital gain in the Am funds is a realized capital gain or not. If it is not a realized capital gain, was it a distribution of $25,000 that is labelled as a long-term capital gain?
Sorry I'm so dense about this and thank you for helping me.
If I'm understanding this correctly, it's unrealized because I've never sold anything I've ever owned. Which partially explains my lack of knowledge on this. Never heard of TLH before finding this website!
Also the capital gain of 25K is a distribution. The transaction listed in my Am Funds account says "capital gain to bank". Doesn't say I'f long or short, wonder why, but I assumed long because I've owned these funds since the mid 1990's and haven't purchased any more since early 2000"s.
Thank you!
