TLH on CA tax exempt muni

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

TLH on CA tax exempt muni

Post by 8301 »

My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
User avatar
retired@50
Posts: 12830
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: TLH on CA tax exempt muni

Post by retired@50 »

8301 wrote: Thu Mar 23, 2023 10:37 am My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
There's certainly no harm in harvesting the losses. If you're willing to sit out of the market for a while, you could consider holding the cash proceeds in the CA muni money market fund VCTXX.

I have no idea what will happen to CA muni bond fund share prices in the interim.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
ofckrupke
Posts: 974
Joined: Mon Jan 10, 2011 1:26 pm

Re: TLH on CA tax exempt muni

Post by ofckrupke »

8301 wrote: Thu Mar 23, 2023 10:37 am Is it safe to assume that there may be no drastic price upswing of CA munis?
It depends on what you mean by safe. IMO a quick, dirty, weak prognostic can be had by comparing current distribution and SEC yields.
For VCLAX, a couple of days ago, SEC = 3.51%, Distr. = 3.37%. To me that says that if the muni yield curve is static over the current duration of 7.1y, then one should expect something on the order of 0.14% annual appreciation of NAV over the period. Pretty big IF. And I don't think you can do better than that in terms of prediction, without taking a position about the future movement of the yield curve...which is much easier to do than to do reliably.

Given the lukewarm expectation of LT capital appreciation and the apparent certainty of prompt application against existing gains, it's hard to make a case against harvesting the losses.
rkhusky
Posts: 17764
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH on CA tax exempt muni

Post by rkhusky »

You could also put the proceeds into the national intermediate TE fund which probably correlates with the CA funds.
Topic Author
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: TLH on CA tax exempt muni

Post by 8301 »

Thank you for confirming that TLH is the way to go. T-bills look attractive in the short term.
User avatar
CAsage
Posts: 3539
Joined: Sun Mar 27, 2016 6:25 pm

Re: TLH on CA tax exempt muni

Post by CAsage »

Same issue last fall. I sold my CA intermediate fund (completely) and bought a similar term Federal Mun Fund (all states). The only downside was that within 30 days, of course it went up and I had to pay Ca taxes on the ~89% other states income on my CA return. One could also choose another CA muni fund.... but I did TLH in 2022.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: TLH on CA tax exempt muni

Post by retiredjg »

8301 wrote: Thu Mar 23, 2023 10:37 am Is it safe to assume that there may be no drastic price upswing of CA munis?
It is not "safe" to assume anything financial, but this seems like a pretty good bet to me. For bond values to go up, interest rates need to go down. It does not seem like anyone is thinking of lowering interest rates in the near future (the next 30 days).
User avatar
Hacksawdave
Posts: 808
Joined: Tue Feb 14, 2023 4:44 pm

Re: TLH on CA tax exempt muni

Post by Hacksawdave »

retired@50 wrote: Thu Mar 23, 2023 10:44 am
8301 wrote: Thu Mar 23, 2023 10:37 am My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
There's certainly no harm in harvesting the losses. If you're willing to sit out of the market for a while, you could consider holding the cash proceeds in the CA muni money market fund VCTXX.

I have no idea what will happen to CA muni bond fund share prices in the interim.

Regards,
Makes sense to me, and as retire@50 eluded to, park them in the CA tax-exempt MM VCTXX. I own all three of them. As long as you wait past the prescribed wash sale time period it should work. The bond price could (will) fluctuate either way, but the per share distribution yield has been trending higher the last few months.

I don’t think you will miss much as the SIMFA Municipal Swap Index hit its second highest yield yesterday in the last 10 years at 4.35%. This influences the short term SEC and distribution yield higher on the VCTXX MM fund.
Topic Author
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: TLH on CA tax exempt muni

Post by 8301 »

Hacksawdave wrote: Thu Mar 23, 2023 5:29 pm
retired@50 wrote: Thu Mar 23, 2023 10:44 am
8301 wrote: Thu Mar 23, 2023 10:37 am My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
There's certainly no harm in harvesting the losses. If you're willing to sit out of the market for a while, you could consider holding the cash proceeds in the CA muni money market fund VCTXX.

I have no idea what will happen to CA muni bond fund share prices in the interim.

Regards,
Makes sense to me, and as retire@50 eluded to, park them in the CA tax-exempt MM VCTXX. I own all three of them. As long as you wait past the prescribed wash sale time period it should work. The bond price could (will) fluctuate either way, but the per share distribution yield has been trending higher the last few months.

I don’t think you will miss much as the SIMFA Municipal Swap Index hit its second highest yield yesterday in the last 10 years at 4.35%. This influences the short term SEC and distribution yield higher on the VCTXX MM fund.
The 7 day SEC yield of VCTXX is 2.42% as of today. The equivalent T-bill yield is close to 4% for me without CA tax which is a little lower than the expected T-bill rate at next auction.
User avatar
Artsdoctor
Posts: 6063
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: TLH on CA tax exempt muni

Post by Artsdoctor »

8301 wrote: Thu Mar 23, 2023 10:37 am My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
You have a few options. You can definitely tax-loss harvest out of VCADX. California allows carryover losses so it's a smart move.

How much interest are you earning each month? If it's "a lot," you can tax-loss harvest into the national intermediate fund, VWIAX. That way, you'll capture the monthly dividend. If it's not "a lot," you can simply sell, put it in a money market fund, and buy back VCADX at 31 days.
Topic Author
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: TLH on CA tax exempt muni

Post by 8301 »

Artsdoctor wrote: Thu Mar 23, 2023 6:03 pm
8301 wrote: Thu Mar 23, 2023 10:37 am My CA tax exempt munis (interm. & long terms) show significant long term capital losses. Are there any downsides with TLH and buying them back after a wash sale period? I badly need offset both LTCG and STCG from selling employer stock shares. Is it safe to assume that there may be no drastic price upswing of CA munis? I am in the CA 9.3% tax bracket and also subject to NIIT and Medicare surcharge.
You have a few options. You can definitely tax-loss harvest out of VCADX. California allows carryover losses so it's a smart move.

How much interest are you earning each month? If it's "a lot," you can tax-loss harvest into the national intermediate fund, VWIAX. That way, you'll capture the monthly dividend. If it's not "a lot," you can simply sell, put it in a money market fund, and buy back VCADX at 31 days.
I have mostly VCADX and a small amount of VCITX. I am receiving interests of about $300-$400 per month.
User avatar
retired@50
Posts: 12830
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: TLH on CA tax exempt muni

Post by retired@50 »

8301 wrote: Thu Mar 23, 2023 5:57 pm
The 7 day SEC yield of VCTXX is 2.42% as of today. The equivalent T-bill yield is close to 4% for me without CA tax which is a little lower than the expected T-bill rate at next auction.
I'm curious what your Federal tax bracket is and what sort of T-bill you're considering.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: TLH on CA tax exempt muni

Post by 8301 »

retired@50 wrote: Thu Mar 23, 2023 6:55 pm
8301 wrote: Thu Mar 23, 2023 5:57 pm
The 7 day SEC yield of VCTXX is 2.42% as of today. The equivalent T-bill yield is close to 4% for me without CA tax which is a little lower than the expected T-bill rate at next auction.
I'm curious what your Federal tax bracket is and what sort of T-bill you're considering.

Regards,
32% or 35%. I may park money in 4-week T-bill and buy back VCADX.
User avatar
retired@50
Posts: 12830
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: TLH on CA tax exempt muni

Post by retired@50 »

8301 wrote: Thu Mar 23, 2023 7:17 pm
retired@50 wrote: Thu Mar 23, 2023 6:55 pm
8301 wrote: Thu Mar 23, 2023 5:57 pm
The 7 day SEC yield of VCTXX is 2.42% as of today. The equivalent T-bill yield is close to 4% for me without CA tax which is a little lower than the expected T-bill rate at next auction.
I'm curious what your Federal tax bracket is and what sort of T-bill you're considering.

Regards,
32% or 35%. I may park money in 4-week T-bill and buy back VCADX.
What interest rate are you seeing for a 4-week T-bill that would net you "close to 4%" - how close?

According to my calculations, to net 4% after paying 32% in Federal taxes you'd have to see a headline rate of 5.88%

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
Hacksawdave
Posts: 808
Joined: Tue Feb 14, 2023 4:44 pm

Re: TLH on CA tax exempt muni

Post by Hacksawdave »

8301 wrote: Thu Mar 23, 2023 7:17 pm
retired@50 wrote: Thu Mar 23, 2023 6:55 pm
8301 wrote: Thu Mar 23, 2023 5:57 pm
The 7 day SEC yield of VCTXX is 2.42% as of today. The equivalent T-bill yield is close to 4% for me without CA tax which is a little lower than the expected T-bill rate at next auction.
I'm curious what your Federal tax bracket is and what sort of T-bill you're considering.

Regards,
32% or 35%. I may park money in 4-week T-bill and buy back VCADX.
OP, what is your cost basis per share for each fund? I’m guessing you have about 14,000 shares of VCADX and 4,400 shares of VCITX.
User avatar
dratkinson
Posts: 6116
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: TLH on CA tax exempt muni

Post by dratkinson »

8301 wrote: Thu Mar 23, 2023 6:24 pm...
I have mostly VCADX and a small amount of VCITX. I am receiving interests of about $300-$400 per month.
Idea. You could stay in the market by TLHing one to the other, one at a time.
--Pro: Would ensure you don't completely miss any price run-up.
--Con: Round trip would take twice as long, your fund percentages would reverse, and any price run-up might make it impossible to complete round trip.



Idea. I second the thought that you could TLH to VCTXX (CA TE mmkt). Why?
Pro. Seems easiest/quickest. Mmkt SEC yield seems to be between your LT and IT munis.
--VCITX (LT) 30-day SEC yield = 3.43%: https://investor.vanguard.com/investmen ... file/vcitx
--VCTXX (mmkt) 7-day* SEC yield = 3.21%: https://investor.vanguard.com/investmen ... file/vctxx
--VCADX (IT) 30-day SEC yield = 3.05%: https://investor.vanguard.com/investmen ... file/vcadx
Con. Any price run-up would cost you more to rebuy.

* I don't know how to equate 7-day to 30-day SEC yields.



Idea. Fed meeting schedule. See: https://www.federalreserve.gov/monetary ... endars.htm

Looks like the fed met 21-22 March, and next planned for 2-3 May. If you TLH after fallout from 22 Mar meeting, you'd have over 30days to complete your TLHing before next fed meeting; meaning there might not be an additional price change during that time.

I know nothing.



I follow the advice, "Don't be too greedy, leave 10% for the other guy." (unknown). When TLHing (my primary goal), I expect that I may miss out on something, and that's okay as any small loss is probably within my 10% loss tolerance---it's the cost of doing business to accomplish my primary goal.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
Post Reply