Question on tax loss harvesting

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renegade06
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Question on tax loss harvesting

Post by renegade06 »

Hello BH’s. I’d appreciate help on a TLH question.

I’ve purchased several lots of a stock as the price of the stock has continues to go down. I’d like to sell one of my high priced loss to take a loss on paper, and then buy back the stock at it’s current (much) lower price.

My last purchase of the stock was on April 19. Does that mean that I cannot do a TLH for 31 days (May 20)? Or… can I sell some stock now, take a loss, then wait 31 days to buy the stock back? Thank you!
daniel2000
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Re: Question on tax loss harvesting

Post by daniel2000 »

renegade06 wrote: Fri Apr 30, 2021 7:43 pm Hello BH’s. I’d appreciate help on a TLH question.

I’ve purchased several lots of a stock as the price of the stock has continues to go down. I’d like to sell one of my high priced loss to take a loss on paper, and then buy back the stock at it’s current (much) lower price.

My last purchase of the stock was on April 19. Does that mean that I cannot do a TLH for 31 days (May 20)? Or… can I sell some stock now, take a loss, then wait 31 days to buy the stock back? Thank you!
Be ware of the wash sale rule https://www.investopedia.com/terms/w/washsalerule.asp
I think you are correct on the 31 days number.
To work around this I would recommend looking into call buying options (in the money) before selling the stock and selling the stock almost immediately.
Example if the current stock price is $10, buy the calls with a $9 or $8 strike then sell the shares. That way you will avoid the wash sale and not change your exposure.
Diversification.
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renegade06
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Re: Question on tax loss harvesting

Post by renegade06 »

Thanks! I need to read up on buying options…. Haven’t done that before
livesoft
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Re: Question on tax loss harvesting

Post by livesoft »

From your description, I cannot tell if that would be a wash sale or not. Since a wash sale is not illegal, easily reported, and doesn't cost you money, why not just sell and see if your broker calls that a wash sale? However, if you do sell for a loss and it turns out it is not a wash sale, then if you do buy the same stock in the next 30 days, then that will create a wash sale or partial wash sale.
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grabiner
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Re: Question on tax loss harvesting

Post by grabiner »

renegade06 wrote: Fri Apr 30, 2021 7:43 pm My last purchase of the stock was on April 19. Does that mean that I cannot do a TLH for 31 days (May 20)? Or… can I sell some stock now, take a loss, then wait 31 days to buy the stock back? Thank you!
If you sell the shares you purchased in the last 30 days (whether they have a gain or a loss), and don't buy the stock within 30 days, you either won't have a wash sale or will have an irrelevant wash sale which does not affect the tax due.
daniel2000 wrote: Fri Apr 30, 2021 7:49 pm To work around this I would recommend looking into call buying options (in the money) before selling the stock and selling the stock almost immediately.
Example if the current stock price is $10, buy the calls with a $9 or $8 strike then sell the shares. That way you will avoid the wash sale and not change your exposure.


This will not work. The IRS explicitly says that if you sell a stock and acquire an option to buy the stock (or to buy substantially identical stock), this is a wash sale. You will not be able to deduct the loss until you sell the option.
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renegade06
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Re: Question on tax loss harvesting

Post by renegade06 »

I just had one more follow up to my post... Is there a problem if I make two transactions (one in Fidelity and one in Vanguard) to sell at a loss to avoid a wash sale?

For example, I have a $10k loss of Stock X at Fidelity. I have a $12k loss of the same stock X at Vanguard. I'd like to sell both on the same day, then wait 31 days to buy back at low price while still being able to declare the loss for tax purposes.
bogledogle
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Re: Question on tax loss harvesting

Post by bogledogle »

renegade06 wrote: Wed May 05, 2021 11:42 am I just had one more follow up to my post... Is there a problem if I make two transactions (one in Fidelity and one in Vanguard) to sell at a loss to avoid a wash sale?

For example, I have a $10k loss of Stock X at Fidelity. I have a $12k loss of the same stock X at Vanguard. I'd like to sell both on the same day, then wait 31 days to buy back at low price while still being able to declare the loss for tax purposes.
Selling in two brokerages does not create a problem when you are losing money in both transactions.
livesoft
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Re: Question on tax loss harvesting

Post by livesoft »

renegade06 wrote: Wed May 05, 2021 11:42 am I just had one more follow up to my post... Is there a problem if I make two transactions (one in Fidelity and one in Vanguard) to sell at a loss to avoid a wash sale?

For example, I have a $10k loss of Stock X at Fidelity. I have a $12k loss of the same stock X at Vanguard. I'd like to sell both on the same day, then wait 31 days to buy back at low price while still being able to declare the loss for tax purposes.
While it is not a problem since wash sales are not a problem, there may still be a wash sale to be reported and a cost basis to be adjusted.

Example:
Fidelity: Buy 100 shares on March 1, sell for loss on May 5.
Vanguard: Buy 100 shares on May 2, sell for loss on May 5.

I might call this an irrelevant wash sale.
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renegade06
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Re: Question on tax loss harvesting

Post by renegade06 »

Thank you! And to clarify, I originally purchased on 2/5. My last purchase was on 4/19 and I plan to sell at a loss on 5/20. Buy back on 6/21. I don't know why I have trouble wrapping my head around this... I just don't want to make an unforced error. Many thanks for the comments.
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grabiner
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Re: Question on tax loss harvesting

Post by grabiner »

renegade06 wrote: Wed May 05, 2021 11:42 am I just had one more follow up to my post... Is there a problem if I make two transactions (one in Fidelity and one in Vanguard) to sell at a loss to avoid a wash sale?

For example, I have a $10k loss of Stock X at Fidelity. I have a $12k loss of the same stock X at Vanguard. I'd like to sell both on the same day, then wait 31 days to buy back at low price while still being able to declare the loss for tax purposes.
As long as they are both sales, there is no problem.

But if you sell a stock at Fidelity, and buy it at Vanguard, that can be a wash sale. Fidelity will not report this wash sale since it doesn't know about your Vanguard account, but you are still responsible for reporting the wash sale on your taxes.
renegade06 wrote: Wed May 05, 2021 2:38 pm And to clarify, I originally purchased on 2/5. My last purchase was on 4/19 and I plan to sell at a loss on 5/20. Buy back on 6/21. I don't know why I have trouble wrapping my head around this... I just don't want to make an unforced error. Many thanks for the comments.
You don't need to wait 31 days after buying a share to sell that share, as long as you sell all shares you bought within the past 30 days (including any with gains). A wash sale occurs when you buy shares within 31 days before or after selling at a loss. The disallowed loss on the shares you bought is added to the basis of the replacement shares. If you sold all of those shares, you cannot have any disallowed loss.
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diceman3
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Re: Question on tax loss harvesting

Post by diceman3 »

Why not buy the same amount of the stock on one day, and several days later, sell the original stock. Be sure that when you are selling the original stock to use FIFO ( First in, First Out). That should give you your tax loss and maintain the new shares at your desired lower price.
Katietsu
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Re: Question on tax loss harvesting

Post by Katietsu »

diceman3 wrote: Wed May 05, 2021 6:03 pm Why not buy the same amount of the stock on one day, and several days later, sell the original stock. Be sure that when you are selling the original stock to use FIFO ( First in, First Out). That should give you your tax loss and maintain the new shares at your desired lower price.
Because this is a wash sale.
livesoft
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Re: Question on tax loss harvesting

Post by livesoft »

renegade06 wrote: Wed May 05, 2021 2:38 pm Thank you! And to clarify, I originally purchased on 2/5. My last purchase was on 4/19 and I plan to sell at a loss on 5/20. Buy back on 6/21. I don't know why I have trouble wrapping my head around this... I just don't want to make an unforced error. Many thanks for the comments.
You could sell all tomorrow and buy back 31 days later. You do not have to wait until 5/20 to sell all the shares including those purchased on 4/19.
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Re: Question on tax loss harvesting

Post by placeholder »

diceman3 wrote: Wed May 05, 2021 6:03 pm Why not buy the same amount of the stock on one day, and several days later, sell the original stock. Be sure that when you are selling the original stock to use FIFO ( First in, First Out). That should give you your tax loss and maintain the new shares at your desired lower price.
The tax laws have that covered because the wash sale period is 30 days before and after the sale (total of 61 days).
daniel2000
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Re: Question on tax loss harvesting

Post by daniel2000 »

grabiner wrote: Fri Apr 30, 2021 9:52 pm
renegade06 wrote: Fri Apr 30, 2021 7:43 pm My last purchase of the stock was on April 19. Does that mean that I cannot do a TLH for 31 days (May 20)? Or… can I sell some stock now, take a loss, then wait 31 days to buy the stock back? Thank you!
If you sell the shares you purchased in the last 30 days (whether they have a gain or a loss), and don't buy the stock within 30 days, you either won't have a wash sale or will have an irrelevant wash sale which does not affect the tax due.
daniel2000 wrote: Fri Apr 30, 2021 7:49 pm To work around this I would recommend looking into call buying options (in the money) before selling the stock and selling the stock almost immediately.
Example if the current stock price is $10, buy the calls with a $9 or $8 strike then sell the shares. That way you will avoid the wash sale and not change your exposure.


This will not work. The IRS explicitly says that if you sell a stock and acquire an option to buy the stock (or to buy substantially identical stock), this is a wash sale. You will not be able to deduct the loss until you sell the option.
I think it will work if the option is bought Before the sale. Please correct me again, if I have misspoken.
Diversification.
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Re: Question on tax loss harvesting

Post by grabiner »

daniel2000 wrote: Fri May 07, 2021 2:44 pm
grabiner wrote: Fri Apr 30, 2021 9:52 pm
daniel2000 wrote: Fri Apr 30, 2021 7:49 pm To work around this I would recommend looking into call buying options (in the money) before selling the stock and selling the stock almost immediately.
Example if the current stock price is $10, buy the calls with a $9 or $8 strike then sell the shares. That way you will avoid the wash sale and not change your exposure.


This will not work. The IRS explicitly says that if you sell a stock and acquire an option to buy the stock (or to buy substantially identical stock), this is a wash sale. You will not be able to deduct the loss until you sell the option.
I think it will work if the option is bought Before the sale. Please correct me again, if I have misspoken.
The wash sale rule applies to a purchase made within 30 days before or after, and this includes not only a purchase of the stock, but an option to purchase the stock.

An example of what this is intended to prevent:
You hold 100 shares of stock bought for $20.
On May 10, you buy 100 shares for $10.
On May 11, you sell your old shares for $10.

This is a wash sale; you cannot deduct the $1000 capital loss until you sell the May 11 shares.

Given the way the rule is written, the same would apply if you bought an option on May 10 rather than the stock itself.
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