Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

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middistancerunner
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Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

Hi forum,

I would like help in unwinding a recent position in my taxable account, because I realized that FSKAX isn't really the best tax choice for this account. (I will be moving the funds to ITOT or VTI.) Starting in August, I purchased four equal installments of FSKAX. There has been one dividend distribution as well.

date amount price shares Gains/losses
8/10/2021 $16,500.00 $127.26 129.6558227 $383.78
9/1/2021 $16,500.00 $129.90 127.0207852 $40.65
10/1/2021 $16,500.00 $125.32 131.6629429 $645.15
11/2/2021 $16,500.00 $133.19 123.8831744 -$367.93
12/10/2021 $716.60 $132.20 5.420574887 dividend -$10.73

Today's price FSKAX $130.22

A key concern for tax purposes is that on 1/7/2022 there was a $6,000 Roth IRA purchase of FSKAX.

I am completely new to taxable investing, and am worried about making a mistake. All other thing equal I think it'd make the most sense to take the tax hit now and sell the entire nut, which would result in $690.91 in gains. But, I am wondering if the last two lots will have their losses disallowed due to the IRA purchase, meaning it'd be.... $1,069.58 in gains? Did I figure that right? Am I understanding the wash sale rule correctly here?

Alternatively, I could sell the first three lots, then wait to sell the last two when they are not at a loss, or after 2/8/2022, whichever comes first. Thoughts/advice?
Last edited by middistancerunner on Mon Jan 17, 2022 9:59 pm, edited 2 times in total.
SnowBog
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by SnowBog »

Interesting question... I'm not sure I know the answer, so I'm following.

My working theory has been since the entire sale is still a "gain", wash sales wouldn't apply.

But more accurately, you have some lots with gains, some with losses...

And your question is would the lots with losses somehow be impacted by wash sales in another account, even though the entire sale itself wound still be a gain.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by cchrissyy »

Alternatively, I could sell the first three lots, then wait to sell the last two when they are not at a loss, or after 2/8/2022, whichever comes first. Thoughts/advice?
that's fine

to clarify, since your january IRA purchase is fewer shares that the November taxable purchase, even if you did sell today and cause a wash sale, the disallowed loss is only on that number of shares. Not the whole November lot.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

cchrissyy wrote: Mon Jan 17, 2022 2:43 pm
Alternatively, I could sell the first three lots, then wait to sell the last two when they are not at a loss, or after 2/8/2022, whichever comes first. Thoughts/advice?
that's fine

to clarify, since your january IRA purchase is fewer shares that the November taxable purchase, even if you did sell today and cause a wash sale, the disallowed loss is only on that number of shares. Not the whole November lot.
Interesting. So, the January IRA purchase was $6,000 at a price of $130.78, so 45.88 shares. Which lots does that come out of first? the December dividend reinvestment (later date) or the November purchase (higher share price)?

Also, I know this is small potatoes ultimately, but I'd also like to minimize tax preparation burden. Is having a wash sale annoying?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

middistancerunner wrote: Mon Jan 17, 2022 2:51 pm
cchrissyy wrote: Mon Jan 17, 2022 2:43 pm
Alternatively, I could sell the first three lots, then wait to sell the last two when they are not at a loss, or after 2/8/2022, whichever comes first. Thoughts/advice?
that's fine

to clarify, since your january IRA purchase is fewer shares that the November taxable purchase, even if you did sell today and cause a wash sale, the disallowed loss is only on that number of shares. Not the whole November lot.
Interesting. So, the January IRA purchase was $6,000 at a price of $130.78, so 45.88 shares. Which lots does that come out of first? the December dividend reinvestment (later date) or the November purchase (higher share price)?

Also, I know this is small potatoes ultimately, but I'd also like to minimize tax preparation burden. Is having a wash sale annoying?
It is applied to the oldest sold lot with a loss within the 61 day period. That sold lot’s loss is disallowed. You repeat until you run out of losses to match against the shares purchased. You do not receive a basis step up in your IRA.

See Rev Rul. 2008-5
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

Lee_WSP wrote: Mon Jan 17, 2022 2:53 pm
It is applied to the oldest sold lot with a loss within the 61 day period. That sold lot’s loss is disallowed. You repeat until you run out of losses to match against the shares purchased. You do not receive a basis step up in your IRA.

See Rev Rul. 2008-5
Thanks! So, it sounds like I'd have 45.88 shares disallowed for $130.22-$133.19 in losses, or 45.88*($130.22-$133.19) = $136.26 disallowed, raising the gains calc from $690.91 to $827.17.

How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

If you haven’t sold, don’t do it. Just wait a couple more weeks. It’s not worth it.
middistancerunner wrote: Mon Jan 17, 2022 3:00 pm
Lee_WSP wrote: Mon Jan 17, 2022 2:53 pm
It is applied to the oldest sold lot with a loss within the 61 day period. That sold lot’s loss is disallowed. You repeat until you run out of losses to match against the shares purchased. You do not receive a basis step up in your IRA.

See Rev Rul. 2008-5
Thanks! So, it sounds like I'd have 45.88 shares disallowed for $130.22-$133.19 in losses, or 45.88*($130.22-$133.19) = $136.26 disallowed, raising the gains calc from $690.91 to $827.17.

How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
If the basis reported on the 1099-B is correct, IIRC you don’t have to file form 8949. But see the instructions for further clarification

https://www.irs.gov/instructions/i8949
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by goingup »

Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Bluemnatra »

goingup wrote: Mon Jan 17, 2022 3:51 pm Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
Do you recommend buying VTI or ITOT first thing the next morning the day after all mutual fund shares have been sold?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

goingup wrote: Mon Jan 17, 2022 3:51 pm Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
That does not work. See rev ruling cited above.

In fact, that doesn't work in taxable either.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by goingup »

Lee_WSP wrote: Mon Jan 17, 2022 3:59 pm
goingup wrote: Mon Jan 17, 2022 3:51 pm Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
That does not work. See rev ruling cited above.

In fact, that doesn't work in taxable either.
Could you explain your reasoning why you think it won't work?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by aristotelian »

What is the tax problem with FSKAX? The most it has put out in capital gains recently was like 0.3%. We are talking perhaps 5 basis points of tax cost.

If you go through with this, you could sell any shares with gains now, wait until the 30 day period has expired, then sell the remaining shares. There is some risk you will lose the loss but you would have it washed out anyway.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by SnowBog »

goingup wrote: Mon Jan 17, 2022 4:02 pm
Lee_WSP wrote: Mon Jan 17, 2022 3:59 pm
goingup wrote: Mon Jan 17, 2022 3:51 pm Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
That does not work. See rev ruling cited above.

In fact, that doesn't work in taxable either.
Could you explain your reasoning why you think it won't work?
+1

My understanding is if all shares are sold, there is nothing to "adjust" to carry any disallowed wash sale.

So long as they don't rebuy FSKAX within 30 days, that would remain true.

So I'm not seeing the problem with this recommendation. (Although I think they could do the entire sale at the same time, don't think they need to wait...)

I'm just not sure if selling from the 401k is required... It's definitely cleaner, and removes any ambiguity. But at a "summary" level, the OP is essentially proposing a TGH (not a TLH), as it results in minor gains (not losses). So unless the minuta of a mix of lots with losses and gains - which aggregate to gains - causes an issue, I'd think they be fine... But admittedly, I'm not 100% certain...
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

aristotelian wrote: Mon Jan 17, 2022 4:13 pm What is the tax problem with FSKAX? The most it has put out in capital gains recently was like 0.3%. We are talking perhaps 5 basis points of tax cost.

If you go through with this, you could sell any shares with gains now, wait until the 30 day period has expired, then sell the remaining shares. There is some risk you will lose the loss but you would have it washed out anyway.
Two problems:
  • It's my understanding that both ITOT and VTI put out even fewer capital gains than FSKAX. May as well go ahead and get it into the most tax efficient position while it's early days and low cost to fix.
  • We hold/invest in FSKAX in a Roth IRA, making any tax loss harvesting in the future more annoying and complicated because of wash sale rules. (There is FSKAX in an HSA and 401k too, though I understand most don't think that matters).
Also are you sure it's .3%? We had a distribution of $716.60 in the fourth quarter, which is ~1% of what was invested, unless I'm misunderstanding?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by grabiner »

Lee_WSP wrote: Mon Jan 17, 2022 3:13 pm
middistancerunner wrote: Mon Jan 17, 2022 3:00 pm
How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
If the basis reported on the 1099-B is correct, IIRC you don’t have to file form 8949. But see the instructions for further clarification

https://www.irs.gov/instructions/i8949
But if you have a wash sale that the brokerage doesn't report, then the 1099-B will be incorrect and you have to file Form 8949.

And that would be the case if you sold for a loss and bought in your IRA. Brokerages only report wash sales of identical securities in the same account.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

grabiner wrote: Mon Jan 17, 2022 4:53 pm
Lee_WSP wrote: Mon Jan 17, 2022 3:13 pm
middistancerunner wrote: Mon Jan 17, 2022 3:00 pm
How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
If the basis reported on the 1099-B is correct, IIRC you don’t have to file form 8949. But see the instructions for further clarification

https://www.irs.gov/instructions/i8949
But if you have a wash sale that the brokerage doesn't report, then the 1099-B will be incorrect and you have to file Form 8949.

And that would be the case if you sold for a loss and bought in your IRA. Brokerages only report wash sales of identical securities in the same account.
This sounds like the kind of situation that is worth avoiding from a headache perspective.... and I'm guessing a lot of people just do this wrong, too, if it isn't reported correctly on tax forms?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

grabiner wrote: Mon Jan 17, 2022 4:53 pm
Lee_WSP wrote: Mon Jan 17, 2022 3:13 pm
middistancerunner wrote: Mon Jan 17, 2022 3:00 pm
How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
If the basis reported on the 1099-B is correct, IIRC you don’t have to file form 8949. But see the instructions for further clarification

https://www.irs.gov/instructions/i8949
But if you have a wash sale that the brokerage doesn't report, then the 1099-B will be incorrect and you have to file Form 8949.

And that would be the case if you sold for a loss and bought in your IRA. Brokerages only report wash sales of identical securities in the same account.
He said they're both at Fidelity and someone said they've washed it in the past, but I agree that it's unlikely to be correct given people's ability to "game" the wash sale.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by RyeBourbon »

goingup wrote: Mon Jan 17, 2022 3:51 pm Sell your Roth holding of FSKAX first to obviate the wash sale. I'd do that at least a day or so in advance of selling in taxable. Buy a Fidelity Zero Fund with the proceeds. FZROX.

Then sell all your shares of FSKAX in taxable. Immediately purchase VTI or ITOT. Don't delay this. A common rookie risk-averse move is to go to cash and stay there. :(
+1
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by livesoft »

We are talking about peanuts here, so it really doesn't matter too much what the OP does. There is no rush to do anything, but if one wants to rush into this, then I have no problem with that.

I also agree that selling the Roth position and waiting to do anything in taxable after that trade is settled would avoid wash sale in taxable. But maybe the OP wants to use FSKAX in their Roth? In the past Fidelity has had a fee on some of its fund if one sold too soon after purchase. I do not know if that would apply here though and a quick look does not reveal such an early redemption fee.

Thank goodness there is no personal holding period to worry about with the qualified dividend thing.

Anyways, I would just set an appointment in the calendar on my phone to deal with all this on February 7. By then, maybe the comments in this thread will have died down and everyone would be feeling pretty good about things.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

livesoft wrote: Mon Jan 17, 2022 5:41 pm I also agree that selling the Roth position and waiting to do anything in taxable after that trade is settled would avoid wash sale in taxable. But maybe the OP wants to use FSKAX in their Roth? In the past Fidelity has had a fee on some of its fund if one sold too soon after purchase. I do not know if that would apply here though and a quick look does not reveal such an early redemption fee.
Yeah, I mean I'm happy with the current setup in all the tax sheltered accounts, all of which use FSKAX. I could undo that then redo it later but ... eh.
livesoft wrote: Mon Jan 17, 2022 5:41 pm Thank goodness there is no personal holding period to worry about with the qualified dividend thing.
What do you mean by this?
livesoft wrote: Mon Jan 17, 2022 5:41 pm Anyways, I would just set an appointment in the calendar on my phone to deal with all this on February 7.
This makes sense to me, though I think I need to turn off all dividend reinvestment for FSKAX in both accounts?

I may also go ahead and sell the lots with gains now since it's on my mind, and wait for the others.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by livesoft »

middistancerunner wrote: Mon Jan 17, 2022 5:45 pmThis makes sense to me, though I think I need to turn off all dividend reinvestment for FSKAX in both accounts?
FSKAX will not have any dividends until ... (I'll let you look it up) ... so I really do not believe it will matter, but there is plenty of time to see if it will matter.

Also I think if you use Average Cost in the taxable account, then there would be no reportable loss and thus no wash sale possible. :twisted:
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

livesoft wrote: Mon Jan 17, 2022 5:49 pm
middistancerunner wrote: Mon Jan 17, 2022 5:45 pmThis makes sense to me, though I think I need to turn off all dividend reinvestment for FSKAX in both accounts?
FSKAX will not have any dividends until ... (I'll let you look it up) ... so I really do not believe it will matter, but there is plenty of time to see if it will matter.

Also I think if you use Average Cost in the taxable account, then there would be no reportable loss and thus no wash sale possible. :twisted:
Historically it looks like April and December for dividends but being new to this I wasn’t sure I could count on that?

Re average cost - interesting. Is that a choice I can make upon sale? Or some kind of account setting?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Bluemnatra »

There were no cap gains for FSKAX for 2020 and 2021. I hear what you're saying though and I've been considering jumping ship for VTI in taxable.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

Bluemnatra wrote: Mon Jan 17, 2022 6:30 pm There were no cap gains for FSKAX for 2020 and 2021. I hear what you're saying though and I've been considering jumping ship for VTI in taxable.
Your comment made me realize I am confounding capital gains distributions and dividends distributions :oops: I feel dumb.

Still, for me, having FSKAX in taxable is a pain due to the fact that I use it in all of our tax sheltered accounts.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by aristotelian »

middistancerunner wrote: Mon Jan 17, 2022 7:07 pm
Bluemnatra wrote: Mon Jan 17, 2022 6:30 pm There were no cap gains for FSKAX for 2020 and 2021. I hear what you're saying though and I've been considering jumping ship for VTI in taxable.
Your comment made me realize I am confounding capital gains distributions and dividends distributions :oops: I feel dumb.

Still, for me, having FSKAX in taxable is a pain due to the fact that I use it in all of our tax sheltered accounts.
The easier solution is to switch to FZROX or equivalent ETF in the retirement accounts. Then let FSKAX ride in taxable with no gains or wash sales to worry about.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by rkhusky »

Did you have any recent dividends with FSKAX in other tax-advantaged accounts? If it was just one Roth IRA, you could sell and substitute with something else, like a zero fund or a S&P 500 fund. Then sell out in taxable. Wait for 30+ days and then buy back FSKAX.

OTOH, if you had multiple accounts with the dividends, you might just want to sell the gains and wait until Feb 7 or the gain is zero for the current shares with a loss, like you mentioned.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

Lee_WSP wrote: Mon Jan 17, 2022 8:58 pm You are receiving wildly incorrect information on the wash sale rules and applications.

Pub 550 is the best easiest to read source on this, but it is not 100% accurate. And Read the ruling I cited earlier. Fortunately the service is unlikely to bother auditing you over this, so feel free to ignore my expertise as it'll probably come to nothing if you do.
Well, I imagine in this case the chances of being audited are ~0, but I am also trying to learn about these things for the future and to generally understand, so I very much appreciate your expertise.

Upthread you suggested waiting until Feb 7, which I might do for simplicity. But, is there any reason I shouldn't sell the lots that are definitely in gains only? And then wait till Feb 7 for the remainder?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by cchrissyy »

OP,
there's something to be said for simply leaving it all alone. you don't need to worry about holding the same thing in multiple account types unless you are selling to capture a loss. but i assume the reason your taxable brokerage account is holding a total market fund is that you're investing for the very long term. correct? so you don't expect to sell, you are buying and holding for long run profits. nobody needs to tax loss harvest. and the more time goes by, the less likely your shares are ot be below their purchase price. you can choose to leave this alone. you can add to the holding. or you can buy another total market fund from now on. but nobody says you ever have to sell this one. perhaps, if you do prefer to sell it, you can wait until a year goes by, so you have long term gains.

I crossposted with the below - yes it's fine. the wash sale rule is only about when the shares you sell have losses.
But, is there any reason I shouldn't sell the lots that are definitely in gains only?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

middistancerunner wrote: Mon Jan 17, 2022 9:05 pm [
Upthread you suggested waiting until Feb 7, which I might do for simplicity. But, is there any reason I shouldn't sell the lots that are definitely in gains only? And then wait till Feb 7 for the remainder?
Realizing a gain will not trigger the rule.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

cchrissyy wrote: Mon Jan 17, 2022 9:06 pm OP,
there's something to be said for simply leaving it all alone. you don't need to worry about holding the same thing in multiple account types unless you are selling to capture a loss. but i assume the reason your taxable brokerage account is holding a total market fund is that you're investing for the very long term. correct? so you don't expect to sell, you are buying and holding for long run profits. nobody needs to tax loss harvest. and the more time goes by, the less likely your shares are ot be below their purchase price. you can choose to leave this alone. you can add to the holding. or you can buy another total market fund from now on. but nobody says you ever have to sell this one. perhaps, if you do prefer to sell it, you can wait until a year goes by, so you have long term gains.
Given the tax consequences of getting this right now are minimal, and will be higher later, I think I'd prefer not to get locked in to a sub optimal choice, even if it's only slightly suboptimal.

Yes, this is meant to be for the long term, probably, but also could be sold to, e.g., fund a larger house down payment in the next 3-5 years. So if I have regular investments going into FSKAX in taxable, then eventually sell it for the down payment, and have all the retirement accounts also regularly investing in FSKAX, it just seems like there could be some accidental wash sale headaches down the line that can be avoided pretty cheaply by fixing it now and keeping the fund separation clean. And maybe we will want to TLH at some point, though I don't know for sure.

Basically, it seems a lot easier to make a tax mistake with the setup I have currently (FSKAX in both), and I can have a just-as-elegant but safer setup with a little bit of cost right now. Unless I'm missing something.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by mikeyzito22 »

grabiner wrote: Mon Jan 17, 2022 4:53 pm
Lee_WSP wrote: Mon Jan 17, 2022 3:13 pm
middistancerunner wrote: Mon Jan 17, 2022 3:00 pm
How annoying is this on taxes? Is it more annoying because it's in my IRA? Do I have to self-report this or will Fidelity (the custodian for both the IRA and the Brokerage account) handle reporting in a way that makes it not too bad for me?
If the basis reported on the 1099-B is correct, IIRC you don’t have to file form 8949. But see the instructions for further clarification

https://www.irs.gov/instructions/i8949
But if you have a wash sale that the brokerage doesn't report, then the 1099-B will be incorrect and you have to file Form 8949.

And that would be the case if you sold for a loss and bought in your IRA. Brokerages only report wash sales of identical securities in the same account.
And correct me if I'm wrong, this is why one should hold something very similar to a total market fund, but that follows a different index in taxable versus in the IRAS. I'm thinking VTSAX, VLCAX, VOO in different accounts (and yes international). I was thinking this was a good idea when starting to TLH or TGH?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

Lee_WSP wrote: Mon Jan 17, 2022 9:08 pm
middistancerunner wrote: Mon Jan 17, 2022 9:05 pm [
Upthread you suggested waiting until Feb 7, which I might do for simplicity. But, is there any reason I shouldn't sell the lots that are definitely in gains only? And then wait till Feb 7 for the remainder?
Realizing a gain will not trigger the rule.
Thank you.

Do you have any comment on the suggestion above that I simply sell the shares with an Average Cost basis?

It's also discussed in the below thread, but as much as I follow I don't see a convincing resolution:

viewtopic.php?t=316359
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by 1789 »

You don’t need to change anything. Please don't go into this rabbit hole. Unless you have millions and millions in that fund, it wont make any material impact whether you have FSKAX or FXAIX.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

1789 wrote: Mon Jan 17, 2022 9:39 pm You don’t need to change anything. Please don't go into this rabbit hole. Unless you have millions and millions in that fund, it wont make any material impact whether you have FSKAX or FXAIX.
Confused by this comment. Why are millions and millions necessary for me to want to have tax simplicity and, especially, avoid accidental wash trades? This is a one-time swap that will cost maybe $200 in taxes as far as I can figure.

I'm also not considering FXAIX...
?
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

The wash sale rule is very easy to avoid.

Only trade every sixty one days. Plan your sales. Make sure you don't buy substantially identical shares.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by SnowBog »

livesoft wrote: Mon Jan 17, 2022 5:41 pm In the past Fidelity has had a fee on some of its fund if one sold too soon after purchase. I do not know if that would apply here though and a quick look does not reveal such an early redemption fee.
I don't think there is any fee any more...

But they do track short term - I think they call them "round trip" violations.

Basically, if you buy and sell the same fund (I think within the same account) within a short period of time (something like 30 days), you'll get a warning. The warning notes that if you have repeated violations, they may prevent you from buying that fund for a period of time.

At least that's what I've seen when I've ended up trying to sell a fund recently purchased.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by cchrissyy »

Lee is right, and another very easy way to not have a wash sale is to not sell for a loss in your taxable account. If you can remember to not do that, you won't possibly have an accidental wash sale.

a poster above wrongly included the topic of tax gain harvesting but pls don't be distracted by that. there is no such thing as wash sales when you sell for a gain, so the guidelines about substantially identical replacement shares have absolutely nothing to do with it. just lock in your gains, if you want. most people try not to create a taxable event. but in rare occasions you might want to, and if that ever did happen to you, there is absolutely no reason to worry about owning the same thing in another account.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Bluemnatra »

middistancerunner wrote: Mon Jan 17, 2022 9:20 pm
cchrissyy wrote: Mon Jan 17, 2022 9:06 pm OP,
there's something to be said for simply leaving it all alone. you don't need to worry about holding the same thing in multiple account types unless you are selling to capture a loss. but i assume the reason your taxable brokerage account is holding a total market fund is that you're investing for the very long term. correct? so you don't expect to sell, you are buying and holding for long run profits. nobody needs to tax loss harvest. and the more time goes by, the less likely your shares are ot be below their purchase price. you can choose to leave this alone. you can add to the holding. or you can buy another total market fund from now on. but nobody says you ever have to sell this one. perhaps, if you do prefer to sell it, you can wait until a year goes by, so you have long term gains.
Given the tax consequences of getting this right now are minimal, and will be higher later, I think I'd prefer not to get locked in to a sub optimal choice, even if it's only slightly suboptimal.

Yes, this is meant to be for the long term, probably, but also could be sold to, e.g., fund a larger house down payment in the next 3-5 years. So if I have regular investments going into FSKAX in taxable, then eventually sell it for the down payment, and have all the retirement accounts also regularly investing in FSKAX, it just seems like there could be some accidental wash sale headaches down the line that can be avoided pretty cheaply by fixing it now and keeping the fund separation clean. And maybe we will want to TLH at some point, though I don't know for sure.

Basically, it seems a lot easier to make a tax mistake with the setup I have currently (FSKAX in both), and I can have a just-as-elegant but safer setup with a little bit of cost right now. Unless I'm missing something.
If this is possibly your plan remember that dividends and capital gains increase your cost basis so that later down the road you pay less tax. With an ETF you are only delaying the tax until a future date. FSKAX was just as tax efficient as VTI in 2020 if not more so I believe based on qualified dividend percentage. Nonetheless, in the years FSKAX has a small capital gain yes you'll pay more tax now vs VTI which has none, but you'd theoretically pay less when you go to sell shares later for a down payment or whatever it may be vs VTI which may have a larger embedded capital gain simply based on the fact it has no capital gains distributions year to year.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by middistancerunner »

cchrissyy wrote: Mon Jan 17, 2022 10:37 pm Lee is right, and another very easy way to not have a wash sale is to not sell for a loss in your taxable account. If you can remember to not do that, you won't possibly have an accidental wash sale.

a poster above wrongly included the topic of tax gain harvesting but pls don't be distracted by that. there is no such thing as wash sales when you sell for a gain, so the guidelines about substantially identical replacement shares have absolutely nothing to do with it. just lock in your gains, if you want. most people try not to create a taxable event. but in rare occasions you might want to, and if that ever did happen to you, there is absolutely no reason to worry about owning the same thing in another account.
It's a bit befuddling to be in the midst of a quite complicated thread about how to unwind a pretty simple taxable position without triggering a wash sale, and also have people assert it's so trivial and easy to avoid wash sales in a taxable account that I'm worrying about nothing.

My example about buying a house seems like a very easy example for how someone could do this accidentally. Me, prior to this thread, could easily have: put in an offer on a house, had it accepted, go to liquidate everything in taxable right then to make sure we have funds and liquidity for the upcoming purchase and sale. The last few lots may have had losses, and there may also be recent purchases of FSKAX in our IRA. There you go, an inadvertent wash sale triggered. That seems like a super easy, normal-person way to mess this up, unless I'm misunderstanding something. In fact, this almost happened to us, as we were under contract on a house recently (which fell through) that would have required liquidating this exact account, and I would likely not have thought about this in the context of the 2022 IRA purchase which was made in January. I almost undoubtedly would have accidentally caused a wash sale, because it's only the last lots that would have losses, not the whole account.
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Re: Unwinding a taxable position and avoiding wash sales-am I thinking about this right?

Post by Lee_WSP »

It is easy. Today you turn off dividend buying. Then, don't do anything for thirty days. Sell. Don't do anything else for thirty one days. You're fine.

The rule is worse than people appreciate. Tax loss harvesting needs to be seen as a rather complicated orchestra instead of a simple task.
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