suresh33 wrote:

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I thought of this (yes, I think too much) and found this article;
http://www.fairmark.com/capgain/wash/wsira.htm

In the end it would take an audit to uncover such a circumstance, but
why risk it?

JOE

"suresh33" <suresh33[at]gmail.com> writes:

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Some say yes, some say no. I think Kate Thomas at Fairmark.com makes
a good argument why it won't.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

A strategy that I had been mulling about was using 2 different
accounts, one is tax sheltered and another not tax sheletered. When
you take a loss in your taxable account, you could make the next
transaction in the tax sheletered account. This allows you to gain the
profit without loss of window. Can this work?

On Jan 23, 1:12 pm, beliav...[at]aol.com wrote:
- quote -

Tad Borek wrote:

<snip
- quote -

I agree, but one needs many stocks to assemble a diversified portfolio,
and
some people may not have the money or the time to buy enough stocks.
They
can consider replicating the S&P 500 with sector ETFs or the EAFE (a
foreign stock index) with
country ETFs to get some (but not all) of the benefits of tax-loss
harvesting in individual stocks
with less hasle.

PeterL wrote:

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The market for Pokemon cards, duh.

-Will

catalpa wrote:
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Sorry, being a little too optimistic. I meant the bear market of 2000 -
2002. I'm glad I didn't generate big losses in a bull market...

-Will

Will Trice wrote:
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The "2000 - 2002" bull market? Where was this? Peru? Vietnam?

- quote -

"Will Trice" <wwtrice[at]paragondynamics.com> wrote in message
news:45B5417C.5040103[at]paragondynamics.com...
- quote -

Where were you investing? In the USA 2000 to 2002 was a significant BEAR
market.

zxcvbob wrote:
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Schwab Charitable fund handles this quite well. $10,000 to open the
account, if you are fortunate enough to want to donate this much in a
given year. Then you tell them where to donate cash, minimum of $250 at
a time. For those with variable incomes or the occasional windfall, this
can work out well, but as you said, only if you were donating already.
The letter with the check indicates the name of your fund "JoeTaxpayer
Charity Account" and your actual name, along with whatever note you
wish, such as "annual fund" "building fund", etc.

There is talk that they (and Fidelity) have plans to lower the initial
transaction to $5000 to gain more accounts.
JOE

joetaxpayer wrote:
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There's one more benefit that you're overlooking (and I'm having great
difficulty writing this so it makes sense because I don't know the
terminology.)

When you sell a long-term holding at a loss, you have to balance that loss
against your long-term capital gains first, then any excess up to $3000 can
written off against *ordinary income* at your marginal tax rate. (then
anything left beyond $3000 is carried forward to the next year) By giving
all your capital gains to charity, you have no LT gains so the *first*
$3000 of losses get written of against ordinary income.

This assumes you were gonna give to charity anyway, and you are just giving
appreciated long-term assets instead of cash.

Unfortunately for me, much of my charitable giving goes to my church, and
the rest gets spread around to a bunch of charities. I'm currently going
to a tiny church that can't really handle gifts of stock because their bank
would screw them with high commissions and account management fees (I
checked.) :-( This used to work really well when I went to a big church.

Best regards,
Bob

- quote -

This works well. Only warning is that the stock must be a long term cap
gain, this trick can't be used to avoid short term gains. Given that
long term gains can have a phantom rate over 20% (due to AMT and loss of
exemptions), it can make the deduction worth 50%.
Ex, Stock basis $2000, present value $10000.
In 33% bracket, get back $3300 for the donation.
But had you sold the stock at the 20% phantom rate, tax of $1600 would
have been due, so the net savings is $4900.
Of course you don't give away money just for the refund, but having the
IRS act as my partner in philanthropy is better than some alternative
ways they can spend my money.

JOE

woessner[at]gmail.com wrote:

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Fairmark discusses this and concludes that the above are substantially
identical. see http://www.fairmark.com/capgain/wash/wsident.htm

You could find an index that is a superset of the index you are selling,
S&P 1500 to replace the S&P 500, for example. The chance of them
diverging enough to cause heartburn over 31 days is minimal, compare ISI
(the iShare for S&P 1500) to SPY for 2 years and you'll see about 1%
difference over 2 years time.

JOE

"woessner[at]gmail.com" <woessner[at]gmail.com> writes:

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The flip answer, which is probably the final word unfortunately, is
"Yes, an audit."

--
Todd H.
http://toddh.net/

woessner[at]gmail.com wrote:
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I did this during the 2000 - 2002 bull market and managed to get myself
in a position where I had paid negative taxes on my investment gains.
Of course, the caveats mentioned by kastnna and Joe still apply.

-Will

joe.spam.weinstein[at]gmail.com wrote:
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That's good to know. I was unaware of the wash rule. This seems like
a rule with a LOT of gray area. For example, which of the following
pairs are substantially equal investments:

S&P 500 index fund from different brokers (e.g. Vanguard vs. Fidelity)
S&P 500 index fund vs. SPY?
S&P 500 index fund vs. large-cap index fund (e.g. MSCI 750)?

All three of these pairs have very strong correlation. Is there some
sort of test for "substantial equality"?

--Bill

"woessner[at]gmail.com" <woessner[at]gmail.com> writes:

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A few things to consider:

First, this is not tax advice! Just pointing out verbiage and terms
from relevant tax docs.

Your choice of a $3k loss for the example was a good one as that
appears to be the deductible limit of capital losses according to
http://www.irs.gov/pub/irs-pdf/i1040sd.pdf if you don't have other
capital gains that year to offset against. There is also a notion of
carrying over losses to future years if you really take it in the
shorts on a given investment, detailed in the capital loss carryover
worksheet stuff.

But that's immaterial since I think the IRS calls your clever plan a
"wash sale" and disallows that deduction if you try to turn it inside
of 30 days:
Pub 550 Wash Sale
http://www.irs.gov/publications/p550/ch04.html#d0e12561


Now the interesting question is "if I wait 31 days to buy it back, is
THAT kosher?" Consult your tax advisor. :-)

- quote -

I haven't, but I recall the wash sale question I answer every year in
my tax program. :-)


Best Regards,
--
Todd H.
http://toddh.net/

kastnna wrote:
- quote -


It's never been addressed clearly. I've thought about setting up a bunch
of wash sales & getting a PLR for the final word on it. Examples - are
these "substantially identical"?

S&P 500 index fund from Vanguard
S&P 500 index fund from Fidelity
S&P 500 index ETF from iShares
S&P 500 index futures covering the wash-sale period
Russell 1000 index fund (highly correlated to S&P 500)
Actively managed fund with large overlap with S&P 500

Similar:
Russell 2000 index fund (sold at loss)
Buy: Russell 3000 index fund
Short: Russell 1000 index fund

Many variations on these.

But for the OP -- yes this is classic "tax management" of a portfolio.
You can do it as well with reinvested dividends of those mutual funds,
as long as you haven't used "average cost basis" when selling the fund
in the past. You use "specific identification" and sell whatever lots
result in a loss. It's typical to have at least some loss positions in a
broadly diversified portfolio where you're investing cash regularly.

This can also be an argument for using individual stocks instead of
mutual funds. If you hold the Dow 30 individually you'll have some
big-gain and big-loss positions. If you hold the ETF (ticker DIA) these
are internal to the fund so there's less chance for tax-loss harvesting.

A further wrinkle on it is using the big-gain positions for charitable
contributions, in effect gifting away your capital gains.

-Tad

joe.spam.weinstein[at]gmail.com wrote:
- quote -

Good point on the substantially equal investment. I was probably vague
or misleading in my earlier post. The exact ETFs I was thinking of were
SPY and VTI, but they may also be too closely related.

Anyone got any experience with the IRS on this?

The only gotcha is the 30-day wash rule. If you sell-and-buy to realize
the capital
loss, you must wait 31 days before re-buying. You do have to miss a
month
of change in the investment you sold. In fact, the IRS will disallow
the loss
if you re-invest the money in any substantially equal investment within
the 30 days,
such as selling Vanguard's S&P fund, and buying SPY... However, you
might get away with selling SPY and buying VTI (a wider scoped
investment,
even though it has similar performance). I will await professionals to
chip in...
Joe Weinstein

Most obviously, you can't violate the "wash sale" guidelines which
effectively keep you out of that investment for 61 days (the 30 days
before the sale and the 30 days after). If you sell and "immediately
rebuy" within those 30 days, the loss cannot be deducted.

In your case (the sell, realize, and rebuy method) you are locked out
of repurchasing that investment for 8.5% of a year (the 30 calendar
days after the loss sale). That can make a big difference.

Of course, another investment may be purchased in that time. I have
heard of people who find two very similar index tracking funds and
alternate purchasing the two in this kind of case. Simply sell the one
at a loss and immediately purchase the second. Rinse. Repeat.
Hopefully, you will never again realize a loss and this will never
matter again!