Can HSA gains be used to offset loss in a taxable account?

[CrisisAverted]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

[Silk McCue]

The HSA is not subject to taxation if used to pay for qualified expenses. Therefore there is no taxable gain to offset your taxable loss.

Cheers

[sycamore]

Not to mention that an unrealized loss wouldn't offset a realized gain anyway.

OP, I'm curious if the question is hypothetical, or if (and why) you would want to offset the loss?

[fabdog]

CA is one of the 2 states (NJ is I believe the other) that actually tax dividends, interest, and cap gains on HSA accounts, so a relevant question

I don't believe they would cancel out, as the $15K capital loss would be recognized on your schedule D for federal purposes (offsetting other cap gains or as a $3k deduction), and flow to your AGI, which is where the CA tax begins.

Then CA would "add back" the $5K capital gain (assuming you realized it) and add that amount to your AGI (along with any other adjustments that are CA specific)

Mike

[Artsdoctor]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

Your state is definitely relevant. CA does not recognize the "tax-free" status of an HSA so all dividends, capital gains, and capital losses are taxable events. Here, your taxable account has a $15,000 loss so if you're going to sell an asset in your HSA for a $5,000, your combined (total) loss would be $10,000. Your losses can be carried over in California. CA does not differentiate between short-term and long-term gains/losses.

Remember that your HSA is recognized as a tax-free account from a federal viewpoint so your capital gain in the HSA would not be reported on your federal return. That means that your federal return would maintain the $15,000 loss.

[Artsdoctor]

The HSA is not subject to taxation if used to pay for qualified expenses. Therefore there is no taxable gain to offset your taxable loss.

Cheers

While this is true in the vast majority of states, it does not apply to California since it doesn't recognize an HSA as a tax-advantaged account.

[Hector]

Previous poster answered your question. Info on how to enter it; https://www.ftb.ca.gov/file/personal/in ... osses.html

[CrisisAverted]

Not to mention that an unrealized loss wouldn't offset a realized gain anyway.

OP, I'm curious if the question is hypothetical, or if (and why) you would want to offset the loss?

My HSA consists of entirely 1 single tech position. After last year's losses, and a small recovery during the current rally, I think it's time to take my (still) winning position and place it somewhere safer for the long haul. I have no plans on using this account anytime soon for medical expenses. But I also don't want to continue to rely on this account with just an amzn position. Of course, gains are now only $5k.

CA is one of the 2 states (NJ is I believe the other) that actually tax dividends, interest, and cap gains on HSA accounts, so a relevant question

I don't believe they would cancel out, as the $15K capital loss would be recognized on your schedule D for federal purposes (offsetting other cap gains or as a $3k deduction), and flow to your AGI, which is where the CA tax begins.

Then CA would "add back" the $5K capital gain (assuming you realized it) and add that amount to your AGI (along with any other adjustments that are CA specific)

Mike

Looks like based on this, I will be "stuck" with the gain regardless for CA tax purposes. I am going to be shifting my cash position from a money market to treasury position, so at least interest earned on the MM position which would've counted for CA taxes (anticipating $17k-20k in interest income) for 2023 won't hit CA taxes, anymore. I can balance out this "savings" by realizing the gain in my HSA.

Your state is definitely relevant. CA does not recognize the "tax-free" status of an HSA so all dividends, capital gains, and capital losses are taxable events. Here, your taxable account has a $15,000 loss so if you're going to sell an asset in your HSA for a $5,000, your combined (total) loss would be $10,000. Your losses can be carried over in California. CA does not differentiate between short-term and long-term gains/losses.

Remember that your HSA is recognized as a tax-free account from a federal viewpoint so your capital gain in the HSA would not be reported on your federal return. That means that your federal return would maintain the $15,000 loss.

Unfortunate, but thank you for the clarification!

[placeholder]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

[miket29]

I don't believe they would cancel out, as the $15K capital loss would be recognized on your schedule D for federal purposes (offsetting other cap gains or as a $3k deduction), and flow to your AGI, which is where the CA tax begins.

Then CA would "add back" the $5K capital gain (assuming you realized it) and add that amount to your AGI (along with any other adjustments that are CA specific)

I've been working on my taxes and I don't think this is accurate. CA does not simply add CA-only gains and losses to your Fed AGI. CA refigures your entire capital gains/losses on Schedule D of the 540. All the same entries from your 1040-D show up and then in addition the CA-only items are listed. So the Federal return would show a capital loss of 15K and the CA return a capital loss of 10K.

[CrisisAverted]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

Honestly, I've never had to track losses like that before and I just figured if I could do less work for years in the future (keeping track of the $3k losses), then it might be easier for me. Also, I am expecting about $20k in interest income in 2023 but it won't be subject to CA taxes (treasuries), so I thought I could use some of my "savings" by selling the HSA proceeds.

[Northern Flicker]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

$3K per year can offset earned income, which is the most productive use. In CA, you may prefer to invest HSA assets in treasuries or TIPS so that there is no state tax on the interest.

[CrisisAverted]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

$3K per year can offset earned income, which is the most productive use. In CA, you may prefer to invest HSA assets in treasuries or TIPS so that there is no state tax on the interest.

Unfortunately, I only have the HSA money that was invested some years ago as I no longer have a health plan that would qualify for additional HSA investment. I'd still have to sell my current HSA position in order to invest in treasuries/TIPS.

[placeholder]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

Honestly, I've never had to track losses like that before and I just figured if I could do less work for years in the future (keeping track of the $3k losses), then it might be easier for me.

It's not difficult especially if you use tax software.

Also, I am expecting about $20k in interest income in 2023 but it won't be subject to CA taxes (treasuries), so I thought I could use some of my "savings" by selling the HSA proceeds.

To me saving on federal plus california income tax even at only 3k per year is a better use and I've been doing that ever since I started tlh in 2008.

[CrisisAverted]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

Honestly, I've never had to track losses like that before and I just figured if I could do less work for years in the future (keeping track of the $3k losses), then it might be easier for me.

It's not difficult especially if you use tax software.

Also, I am expecting about $20k in interest income in 2023 but it won't be subject to CA taxes (treasuries), so I thought I could use some of my "savings" by selling the HSA proceeds.

To me saving on federal plus california income tax even at only 3k per year is a better use and I've been doing that ever since I started tlh in 2008.

OK, I can keep that $15k to use for losses going forward. I am still trying to learn about TLH and looking at opportunities to maximize.

For now, I still have an amzn position that I don't exactly want in the current market (all within HSA), and not sure exactly what to do with it.

[Northern Flicker]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

$3K per year can offset earned income, which is the most productive use. In CA, you may prefer to invest HSA assets in treasuries or TIPS so that there is no state tax on the interest.

Unfortunately, I only have the HSA money that was invested some years ago as I no longer have a health plan that would qualify for additional HSA investment. I'd still have to sell my current HSA position in order to invest in treasuries/TIPS.

Nonetheless, the loss does not have to be used in a single year. You can use a $15K loss to offset $3K of regular income in each of 5 future years.

[Artsdoctor]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

Honestly, I've never had to track losses like that before and I just figured if I could do less work for years in the future (keeping track of the $3k losses), then it might be easier for me.

It's not difficult especially if you use tax software.

Also, I am expecting about $20k in interest income in 2023 but it won't be subject to CA taxes (treasuries), so I thought I could use some of my "savings" by selling the HSA proceeds.

To me saving on federal plus california income tax even at only 3k per year is a better use and I've been doing that ever since I started tlh in 2008.

OK, I can keep that $15k to use for losses going forward. I am still trying to learn about TLH and looking at opportunities to maximize.

For now, I still have an amzn position that I don't exactly want in the current market (all within HSA), and not sure exactly what to do with it.

There are a lot of things you can do with capital losses and tax-loss harvesting comes in handy in a variety of situations. You're right to learn how to use these maneuvers to your advantage.

The first question that I'd be asking is "how important is it to me to hold onto Amazon stock?" Does it fit into your investing plans? Many of us have held individual stocks in the past and decided that individual stocks don't fit in to our investment needs. If you'd like to keep Amazon for some reason, fine. If you'd like to get rid of it or at least decrease your holdings in it, selling in your HSA can be easily done in the setting of capital losses elsewhere. It won't affect your federal capital loss tally but it will change your state capital loss tally--but that's not really an issue once you learn that it's OK to have carryover losses which don't match between federal and state (you can even have capital losses on the federal side and capital gains on the state side).

I would try to look at your overall investment plan and see how your HSA fits into the Big Picture.

[erp]

It's still not clear why you want to offset losses with gains rather than use them against ordinary income at 3k per year.

Honestly, I've never had to track losses like that before and I just figured if I could do less work for years in the future (keeping track of the $3k losses), then it might be easier for me.

It's not difficult especially if you use tax software.

Also, I am expecting about $20k in interest income in 2023 but it won't be subject to CA taxes (treasuries), so I thought I could use some of my "savings" by selling the HSA proceeds.

To me saving on federal plus california income tax even at only 3k per year is a better use and I've been doing that ever since I started tlh in 2008.

OK, I can keep that $15k to use for losses going forward. I am still trying to learn about TLH and looking at opportunities to maximize.

For now, I still have an amzn position that I don't exactly want in the current market (all within HSA), and not sure exactly what to do with it.

Some of the other posts may have things confused. Selling for a gain in your HSA will not affect your federal carryover at all. You will still get to apply the 3k loss toward your income and carry over the rest. On your CA taxes, 5k of losses will be applied against the 5k HSA gain (avoiding CA income tax on it as you wished), then 3k of losses are applied to income, and the rest carried over. Just remember that next year your carryover will be different between fed and CA.

[grabiner]

If we have a taxable account with an approximate $15k long-term loss (realized), and an HSA account with a $5k long-term gain (not realized), can the two offset for a total loss of $10k?

State is CA, if relevant.

These will offset on your CA tax only if you sell to realize the gain.

Since CA taxes capital gains and ordinary income at the same rate, there is no significant cost in taking a CA-only capital gain which offsets a loss; you lose some opportunity to use the loss against ordinary income, but you avoid an equal tax on the gain. (And since this gain is in an HSA, you do intend to realize it during your lifetime.)

Therefore, it's worth selling for the capital gain if there is some other reason to do so, such as getting rid of a fund which does not fit your needs, or switching the HSA to hold only Treasury bonds.