Tax Loss Harvesting, Wash Sale Rule, and 60 days Qualified Dividends Rule

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Topic Author
Vanessa
Posts: 23
Joined: Sat Nov 16, 2013 6:22 pm

Tax Loss Harvesting, Wash Sale Rule, and 60 days Qualified Dividends Rule

Post by Vanessa »

Hello,

I would like to thanks all for giving me your advices.

Taxable
Vanguard Total International Index Fund ETF (VXUS) – Last ex-dividend date 6/21/2022
***Reinvest dividends 6/23/2022 (5.322 shares at $50.91) – Gain
***Reinvest dividends 3/23/2022 (0.772 share at $59.69)
Vanguard Total Stock Market ETF (VTI) – Last ex-dividend date 6/23/2022
***Reinvest dividends 6/27/2022 (1.253 shares at $194.91)
***Reinvest dividends 3/25/2022 (1.013 shares at $227.22)
Her Roth IRA
Vanguard Total Stock Market ETF (VTI) – Last ex-dividend date 6/23/2022
***Reinvest dividends 6/27/2022 (1.362 shares at $0) – Gain
***Reinvest dividends 3/25/2022 (1.102 shares at $0) – Gain
His Roth IRA
Vanguard Total Stock Market Index Fund Adm (VTSAX) – Last ex-dividend date 6/22/2022
***Reinvest dividends 6/22/2022 (3.542 shares at $91.10)
***Reinvest dividends 3/22/2022 (2.752 at $110.44)


Questions:
1) When can I exchange VTI to ITOT and VXUS to IXUS to prevent wash sale rule and 60 days qualified dividends rule? 8/24/2022 for VXUS and 8/28/2022?
2) I want to buy $30K for stock now. VTI or ITOT so that later I can do TLH if stocks still down?
3) Any other suggestions?
Last edited by Vanessa on Thu Jul 07, 2022 1:26 pm, edited 1 time in total.
lazynovice
Posts: 3369
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Tax Loss Harvesting, Wash Sale Rule, and 60 days Dividends Rule

Post by lazynovice »

The dividends you received are for shares you owned for more than 60 days so the dividends are all qualified.

You don’t tell us how many shares you bought in the Roths with dividend reinvestment but chances are they are small. You would lose a very small percentage of your loss if you exchanged. But if you want to avoid it altogether-

If you sell those today and exchange for ITOT, then you can sell and buy into ITOT tomorrow in taxable as long as you sell the shares you reinvested in June.

My suggestion would be to buy SCHB in Roth and to buy ITOT in taxable. Then you won’t have this issue in the future.
livesoft
Posts: 86076
Joined: Thu Mar 01, 2007 7:00 pm

Re: Tax Loss Harvesting, Wash Sale Rule, and 60 days Dividends Rule

Post by livesoft »

The shares purchased on 6/23/2022 and on 6/27/2022 have not paid you any dividends to worry about. So every dividend that you have received is from shares held more than 61 days.

You can sell the shares purchased on 6/23/2022 and on 6/27/2022 without worrying about a wash sale now (i.e. today) as long as you do not purchase substantially identical shares in the next 30 days after selling them today (today would be day 0 when counting 30 days).
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Topic Author
Vanessa
Posts: 23
Joined: Sat Nov 16, 2013 6:22 pm

Re: Tax Loss Harvesting, Wash Sale Rule, and 60 days Dividends Rule

Post by Vanessa »

livesoft wrote: Thu Jul 07, 2022 11:52 am The shares purchased on 6/23/2022 and on 6/27/2022 have not paid you any dividends to worry about. So every dividend that you have received is from shares held more than 61 days.

You can sell the shares purchased on 6/23/2022 and on 6/27/2022 without worrying about a wash sale now (i.e. today) as long as you do not purchase substantially identical shares in the next 30 days after selling them today (today would be day 0 when counting 30 days).

I already turn off the reinvest dividends/capital gain in Taxable Account and Roth IRA.

1) If I sell all VTI (including the one I reinvest on 6/27/2022) and exchange to ITOT today, then I will pay for 1.253 shares of dividends at my ordinary income tax rate (24%) instead of 15% capital gains tax rate?
2) If I sell all VXUS (including the one I reinvest on 6/23/2022) and exchange to IXUS today, then I will pay 5.322 shares of capital gain at ordinary income tax rate since those shares I bought on 6/23/2022 are not at a loss?
3) If I exchange VTI to ITOT, and VXUS to IXUS today, can I also buy additional $30K of ITOT today?
4) Any other suggestions?
livesoft
Posts: 86076
Joined: Thu Mar 01, 2007 7:00 pm

Re: Tax Loss Harvesting, Wash Sale Rule, and 60 days Dividends Rule

Post by livesoft »

Vanessa wrote: Thu Jul 07, 2022 2:22 pmI already turn off the reinvest dividends/capital gain in Taxable Account and Roth IRA.

1) If I sell all VTI (including the one I reinvest on 6/27/2022) and exchange to ITOT today, then I will pay for 1.253 shares of dividends at my ordinary income tax rate (24%) instead of 15% capital gains tax rate?
2) If I sell all VXUS (including the one I reinvest on 6/23/2022) and exchange to IXUS today, then I will pay 5.322 shares of capital gain at ordinary income tax rate since those shares I bought on 6/23/2022 are not at a loss?
3) If I exchange VTI to ITOT, and VXUS to IXUS today, can I also buy additional $30K of ITOT today?
4) Any other suggestions?
A problem is that you bought shares in Roth IRAs on 6/27 and on 6/22, so that until you sell these and wait a day, they will create a wash sale if you sell substantially identical shares for a loss in your taxable account soon. You can sell the shares in your taxable account that were bought on 6/27 and on 6/23 without creating a wash sale. If you sell shares for a gain in your taxable account, then no wash sale possible on those sales.

The dollar amounts of the dividends paid are unaffected and will remain qualified if they are designated qualified by Vanguard in March 2023 on your 1099-DIV for 2022 that you receive then.

Please read IRS Publication 550 and the instructions to Form 1040 Schedule B and the instructions to Form 1040 Schedule D.

Two more things:
a. You don't seem to understand that "reinvested dividends" are just short-hand for 2 transactions: (1) dividends paid in cash and (2) that cash is used to buy shares; and
b. To remain qualified or not for dividends paid applies to the holding time of the shares that PAID THE DIVIDEND and NOT to the shares bought with the cash from the dividend.
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