TLH: Does it matter if it is sold as short-term or long-term losses?
TLH: Does it matter if it is sold as short-term or long-term losses?
I know there is differences in taxation treatment for short-term vs long-term capital gains.
Is there any difference in treatment for TLH short-term vs long-term losses (loosely defined as whether Vanguard states it as "Long" or "Short") under the SpecificID interface)?
Is there any difference in treatment for TLH short-term vs long-term losses (loosely defined as whether Vanguard states it as "Long" or "Short") under the SpecificID interface)?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Of course it matters … otherwise there would be no distinction.
Suppose you want to go back to original holdings in 31 days, but your shares have a short-term gain. Well, short-term losses will offset short-term gains first. Search for more details on the forum.
Once you have all these losses hanging around, it is quite liberating. One can do buying and selling without worrying about taxes. Just think of all the Market Timing possibilities that you can use to make money!
Suppose you want to go back to original holdings in 31 days, but your shares have a short-term gain. Well, short-term losses will offset short-term gains first. Search for more details on the forum.
Once you have all these losses hanging around, it is quite liberating. One can do buying and selling without worrying about taxes. Just think of all the Market Timing possibilities that you can use to make money!
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
I was looking at the wiki:
https://www.bogleheads.org/wiki/Capital ... stribution
Short-term capital gains distributions are made from realized gains on securities held for one year or less. Short-term gains are taxed at ordinary income tax rates Short-term gain distributions are included in a fund's ordinary dividend distribution; therefore, capital losses may not be subtracted from these distributions when computing taxes.
Long-term capital gains distributions are made from realized gains on securities held for more than one year. They are reported on tax Schedule D along with any other capital gains, and can be reduced by capital losses.
Seems that short-term gains cannot be offset?
https://www.bogleheads.org/wiki/Capital ... stribution
Short-term capital gains distributions are made from realized gains on securities held for one year or less. Short-term gains are taxed at ordinary income tax rates Short-term gain distributions are included in a fund's ordinary dividend distribution; therefore, capital losses may not be subtracted from these distributions when computing taxes.
Long-term capital gains distributions are made from realized gains on securities held for more than one year. They are reported on tax Schedule D along with any other capital gains, and can be reduced by capital losses.
Seems that short-term gains cannot be offset?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Ok, this is confusing
https://turbotax.intuit.com/tax-tools/t ... 12052.html
Losses on your investments are first used to offset capital gains of the same type. So short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains.
First it states that short-term losses can be used to offset short-term gains, and long-term losses to offset long-term gains, but then:
Net losses of either type can then be deducted against the other kind of gain. So, for example, if you have $2,000 of short-term loss and only $1,000 of short-term gain, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).
But in the next sentence they claim that short-term loss can be used to off-set long term gains? So can long-term loss be used to offset short-term gains also?
https://turbotax.intuit.com/tax-tools/t ... 12052.html
Losses on your investments are first used to offset capital gains of the same type. So short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains.
First it states that short-term losses can be used to offset short-term gains, and long-term losses to offset long-term gains, but then:
Net losses of either type can then be deducted against the other kind of gain. So, for example, if you have $2,000 of short-term loss and only $1,000 of short-term gain, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).
But in the next sentence they claim that short-term loss can be used to off-set long term gains? So can long-term loss be used to offset short-term gains also?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
It seems that every source have a different answer:
http://www.fool.com/personal-finance/ta ... osses.aspx
Fool.com pretty much says it doesn't matter whether it is short-term or long-term losses, as either can be used to offset either long or short-term gains, and either losses carry over after deducting $3k for ordinary income.
So who is correct?
http://www.fool.com/personal-finance/ta ... osses.aspx
Fool.com pretty much says it doesn't matter whether it is short-term or long-term losses, as either can be used to offset either long or short-term gains, and either losses carry over after deducting $3k for ordinary income.
So who is correct?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Long term gains are taxed at 15%. Short term gains are taxed at your tax bracket when over 15%!tax bracket.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
I understand the different tax treatment for LT vs ST gains, but also wondering about any differences between LT vs ST losses. It seems that (according to Fool.com, Kiplinger and Turbotax - although Intuit did a bad explanation) that ultimately LT vs ST losses seem to be the same in terms of using it to offset gains.Clumsum wrote:Long term gains are taxed at 15%. Short term gains are taxed at your tax bracket when over 15%!tax bracket.
Sure ST losses are applied to ST gains, and LT losses are applied to LT gains, but the net ST/LT loss can be applied to both ST/LT gains, so is there any need to distinguish ST vs LT losses from a practical standpoint? It looks like they both can deduct $3k off ordinary income, they both can carryover to the next year...
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Suppose I have $10K in carryover LT losses. Now I book $10K in LT gains and $5K in ST gains. What are my taxes?
Suppose I have $10K in ST carryover losses. Now I book $10K in LT gains and $5K in ST gains. What are my taxes?
Suppose I have $10K in ST carryover losses. Now I book $10K in LT gains and $5K in ST gains. What are my taxes?
Last edited by livesoft on Mon Jan 11, 2016 8:56 pm, edited 1 time in total.
- House Blend
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
1. Capital gains can be realized by you when you sell shares, but they can also be passed on to you when the fund itself has to sell shares internally. The latter are called capital gain distributions. If all you hold in taxable are Vanguard stock index funds, you might never see a capital gain distribution for the rest of your life.
But if you do, then you should understand that LT cap gain distributions are taxed the same way as LT gains that you realize from your own sales of shares. They get netted in with your other LT gains and losses and appear on Schedule D.
However, ST cap gain distributions are not taxed the same as ST gains you realize from your sales. And they are not reported on Schedule D. They are reported as interest, and are taxed the same way as ordinary income. They cannot be cancelled by ST or LT losses you realize, except up to the usual $3,000 potential cancellation that can happen with all forms of taxable income.
2. Yes, your long term losses can be used to cancel any short term gains you have, but only if you have more LT losses than LT gains.
And as mentioned in item 1, you cannot cancel short term capital gain distributions with any flavor of losses unless all of your losses exceed all of your gains. In that case, you will cancel the excess losses, up to a max of $3000, against any flavor of taxable income.
But if you do, then you should understand that LT cap gain distributions are taxed the same way as LT gains that you realize from your own sales of shares. They get netted in with your other LT gains and losses and appear on Schedule D.
However, ST cap gain distributions are not taxed the same as ST gains you realize from your sales. And they are not reported on Schedule D. They are reported as interest, and are taxed the same way as ordinary income. They cannot be cancelled by ST or LT losses you realize, except up to the usual $3,000 potential cancellation that can happen with all forms of taxable income.
2. Yes, your long term losses can be used to cancel any short term gains you have, but only if you have more LT losses than LT gains.
And as mentioned in item 1, you cannot cancel short term capital gain distributions with any flavor of losses unless all of your losses exceed all of your gains. In that case, you will cancel the excess losses, up to a max of $3000, against any flavor of taxable income.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
First scenario is paying taxes on $5k ST gains, since $10k LT losses cancels out with $10k LT gainslivesoft wrote:Suppose I have $10K in carryover LT losses. Now I book $10K in LT gains and $5K in ST gains. What are my taxes?
Suppose I have $10K in ST carryover losses. Now I book $10K in LT gains and $5K in ST gains. What are my taxes?
Second scenario is paying taxes on $5k LT gains, since $5k ST losses cancels out with $5k ST gains, and the remaining $5k ST losses offset the $10k LT gains.
From this, can I generalize that ST losses are generally more "desirable"/"valuable" than LT losses? If yes, do you make it a point to monitor your fund in the first year to harvest short-term losses?
Last edited by AndroAsc on Mon Jan 11, 2016 11:37 pm, edited 1 time in total.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Ok, I think I was missing something. To clarify, there is a difference between Capital Gains (from when I buy/sell funds) vs Capital Gains Distribution (from when the fund internally buy/sell underlying stocks)?House Blend wrote:1. Capital gains can be realized by you when you sell shares, but they can also be passed on to you when the fund itself has to sell shares internally. The latter are called capital gain distributions. If all you hold in taxable are Vanguard stock index funds, you might never see a capital gain distribution for the rest of your life.
But if you do, then you should understand that LT cap gain distributions are taxed the same way as LT gains that you realize from your own sales of shares. They get netted in with your other LT gains and losses and appear on Schedule D.
However, ST cap gain distributions are not taxed the same as ST gains you realize from your sales. And they are not reported on Schedule D. They are reported as interest, and are taxed the same way as ordinary income. They cannot be cancelled by ST or LT losses you realize, except up to the usual $3,000 potential cancellation that can happen with all forms of taxable income.
2. Yes, your long term losses can be used to cancel any short term gains you have, but only if you have more LT losses than LT gains.
And as mentioned in item 1, you cannot cancel short term capital gain distributions with any flavor of losses unless all of your losses exceed all of your gains. In that case, you will cancel the excess losses, up to a max of $3000, against any flavor of taxable income.
So if I have this right
For Capital Gains: ST losses offset ST gains, LT losses offset LT gains, remaining "net" ST/LT losses offet ST/LT gains
For Capital Gains Distribution: ST losses are reported as interest and taxed as ordinary income. ST losses cannot be offset by ST/LT losses. LT losses are treated the same way as in capital gains.
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
I assume this is a typo for:AndroAsc wrote: For Capital Gains Distribution: ST losses are reported as interest and taxed as ordinary income. ST losses cannot be offset by ST/LT losses. LT losses are treated the same way as in capital gains.
For Capital Gains Distribution: ST gains are reported as interest and taxed as ordinary income. ST gains cannot be offset by ST/LT losses. LT gains are treated the same way as in capital gains.
If it's not a typo: Funds never distribute capital losses. Instead they are carried forward and net against future gains before gains are distributed.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Answers: Yes. Absolutely. I mention this all the time. There is also one more good reason why I always try to harvest losses when they are still short-term.AndroAsc wrote:From this, can I generalize that ST losses are generally more "desirable"/"valuable" than LT losses? If yes, do you make it a point to monitor your fund in the first year to harvest short-term losses?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Thanks, really appreciate your help in handholding me through this. From the sound of it, I guess you have a similar but not identical fund for almost every asset class that you intend to TLH in taxable? That would almost double the number of funds in my portfolio... I hope it's worth the extra effort. I got to modify my spreadsheet to include the TLH-counterpart fund for my asset classes nowlivesoft wrote:Answers: Yes. Absolutely. I mention this all the time. There is also one more good reason why I always try to harvest losses when they are still short-term.AndroAsc wrote:From this, can I generalize that ST losses are generally more "desirable"/"valuable" than LT losses? If yes, do you make it a point to monitor your fund in the first year to harvest short-term losses?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Yup, that was a typo. I meant gains. Thanks.Epsilon Delta wrote:I assume this is a typo for:AndroAsc wrote: For Capital Gains Distribution: ST losses are reported as interest and taxed as ordinary income. ST losses cannot be offset by ST/LT losses. LT losses are treated the same way as in capital gains.
For Capital Gains Distribution: ST gains are reported as interest and taxed as ordinary income. ST gains cannot be offset by ST/LT losses. LT gains are treated the same way as in capital gains.
If it's not a typo: Funds never distribute capital losses. Instead they are carried forward and net against future gains before gains are distributed.
- Epsilon Delta
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
ST losses are never worse than LT losses, but they are only better if you realize ST gains. If you're a pretty passive investor you may never realize ST gains so it's not worth a lot of effort to harvest ST gainslosses v. LT gainslosses.livesoft wrote:Answers: Yes. Absolutely. I mention this all the time. There is also one more good reason why I always try to harvest losses when they are still short-term.AndroAsc wrote:From this, can I generalize that ST losses are generally more "desirable"/"valuable" than LT losses? If yes, do you make it a point to monitor your fund in the first year to harvest short-term losses?
Arg: edited to fix typo.
Last edited by Epsilon Delta on Tue Jan 12, 2016 12:08 pm, edited 1 time in total.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Plus the slight ($3000) offset of Ordinary Income, right?Epsilon Delta wrote: ST losses are never worse than LT losses, but they are only better if you realize ST gains. If you're a pretty passive investor you may never realize ST gains so it's not worth a lot of effort to harvest ST gains v. LT gains.
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
LT losses are as good as ST losses for offsetting ordinary income. I'm not saying I don't harvest the losses, I just don't bother making an effort to make then ST.lairdb wrote:(typo fixed in my originalEpsilon Delta wrote: ST losses are never worse than LT losses, but they are only better if you realize ST gains. If you're a pretty passive investor you may never realize ST gains so it's not worth a lot of effort to harvest ST gainslosses v. LT gainslosses
Plus the slight ($3000) offset of Ordinary Income, right?
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
In my experience I rarely if ever have any LT losses to harvest because I have diligently harvested losses every year while they are still short term.
Once one gets into the habit, then I think one won't wait before losses go long term. Of course, a 2008 happens every now and then.
Once one gets into the habit, then I think one won't wait before losses go long term. Of course, a 2008 happens every now and then.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Yes. I have been reading this thread with amusement, because I cannot foresee any circumstance where I would need to offset sizable short term gains. So I really don't care about short term vs. long term losses, I only care about losses so that I can deduct 3K from my taxes. It just so turns out that most of my losses are short term, but the end result is going to be the same for passive investors like me.Epsilon Delta wrote:livesoft wrote:AndroAsc wrote: ST losses are never worse than LT losses, but they are only better if you realize ST gains. If you're a pretty passive investor you may never realize ST gains so it's not worth a lot of effort to harvest ST gainslosses v. LT gainslosses.
Arg: edited to fix typo.
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Even if you can't forsee a circumstance, that doesn't prevent the OP from having one. See the OPs other thread where it is revealed that he will be shedding taxable shares in order to start maxing out a Mega Backdoor Roth. YMMV.keystone wrote:Yes. I have been reading this thread with amusement, because I cannot foresee any circumstance where I would need to offset sizable short term gains.Epsilon Delta wrote:livesoft wrote:AndroAsc wrote: ST losses are never worse than LT losses, but they are only better if you realize ST gains. If you're a pretty passive investor you may never realize ST gains so it's not worth a lot of effort to harvest ST gainslosses v. LT gainslosses.
I do agree that you may as well take losses whenever they are big enough to be worth it. In practice, you will get a fair share of ST losses that way anyway. And you have to work hard to cook up an example where you would wish that more of your losses were ST.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
You don't need a 2008 to get long-term losses. I harvested my Emerging Markets Index last week, taking a short-term loss on shares bought in October 2015 (which were bought after I harvested a previous loss in August), and a long-term loss on shares bought in 2010.livesoft wrote:In my experience I rarely if ever have any LT losses to harvest because I have diligently harvested losses every year while they are still short term.
Once one gets into the habit, then I think one won't wait before losses go long term. Of course, a 2008 happens every now and then.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
I'm bringing this post back to life from 2 years ago because it addresses a question I hadn't seen answered as succinctly as in Livesoft's example above... Why are ST losses more desireable? Thank you to Hockeyfan99 and Livesoft.
'In theory there is no difference between theory and practice. In practice there is.' Yogi Berra
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
I just completed my 2nd TLH this year...1st and 2nd times ever doing it thanks to this forum. I googled "does it matter TLH long term vs. short term losses" because my 2nd TLH was short term, and came across this thread.
I know it's very old...but I'll revive it to answer this question: They're better because they offset ST gains too (not just LT) and the ST gains are taxed at a higher rate than LT. So if you have both ST and LT gains, ST losses will wipe out more tax owed. If you have no ST gains, it doesn't really matter if the losses are ST or LT.
Here's a follow up question:
When filing my taxes (without any ST or LT gains to claim), do I get to choose which gains to use to offset my $3k ordinary income? Can I "save" the ST losses for the future in case, say, I happen to have some ST gains next year? Unlikely...but just curious if this approach can be used or if I have to utilize ST or LT first and carryover what's left in a certain order.
Cheers mates.
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Re: TLH: Does it matter if it is sold as short-term or long-term losses?
There is no "choosing". The rules are the rules and there are no decisions to be made once you have banked the losses/gains.guitarguy wrote: ↑Tue Jun 21, 2022 2:40 pm Here's a follow up question:
When filing my taxes (without any ST or LT gains to claim), do I get to choose which gains to use to offset my $3k ordinary income? Can I "save" the ST losses for the future in case, say, I happen to have some ST gains next year? Unlikely...but just curious if this approach can be used or if I have to utilize ST or LT first and carryover what's left in a certain order.
Btw, I assume there is typo, when you said "do I get to choose which gains to use to offset my $3k ordinary income". I assume you meant losses.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
It appears to me from the Capital Loss Carryover Worksheet from the Sched D instructions that the $3K income offset is taken from the ST losses first.guitarguy wrote: ↑Tue Jun 21, 2022 2:40 pm When filing my taxes (without any ST or LT gains to claim), do I get to choose which gains to use to offset my $3k ordinary income? Can I "save" the ST losses for the future in case, say, I happen to have some ST gains next year? Unlikely...but just curious if this approach can be used or if I have to utilize ST or LT first and carryover what's left in a certain order.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Yep, I meant losses. Thanks.neurosphere wrote: ↑Tue Jun 21, 2022 3:15 pmThere is no "choosing". The rules are the rules and there are no decisions to be made once you have banked the losses/gains.guitarguy wrote: ↑Tue Jun 21, 2022 2:40 pm Here's a follow up question:
When filing my taxes (without any ST or LT gains to claim), do I get to choose which gains to use to offset my $3k ordinary income? Can I "save" the ST losses for the future in case, say, I happen to have some ST gains next year? Unlikely...but just curious if this approach can be used or if I have to utilize ST or LT first and carryover what's left in a certain order.
Btw, I assume there is typo, when you said "do I get to choose which gains to use to offset my $3k ordinary income". I assume you meant losses.
Re: TLH: Does it matter if it is sold as short-term or long-term losses?
Thanks. I haven't filled out this sheet before...I was guessing that using the ST losses first would be the requirement...but wasn't sure. Appreciate your reply!rkhusky wrote: ↑Tue Jun 21, 2022 4:04 pmIt appears to me from the Capital Loss Carryover Worksheet from the Sched D instructions that the $3K income offset is taken from the ST losses first.guitarguy wrote: ↑Tue Jun 21, 2022 2:40 pm When filing my taxes (without any ST or LT gains to claim), do I get to choose which gains to use to offset my $3k ordinary income? Can I "save" the ST losses for the future in case, say, I happen to have some ST gains next year? Unlikely...but just curious if this approach can be used or if I have to utilize ST or LT first and carryover what's left in a certain order.