Hey, excellent video. You mention that tax loss harvesting can offset up to 3k in capital gains or taxable income. So are you: A. Saving only the tax liability on a 3k capital gain / 3k of taxable income (taxes on the 3k gain) B. Saving up to 3k of tax liability on larger capital gains / total taxable income (For instance, a 10k capital gain with a 3k tax liability) Option A is fine I guess, but option B would be a game changer! Thanks for your help.
Thanks! The 3k limit is just for income offset. It reduces taxable income. It's a tax deduction, not a tax credit. A 100k capital loss can offset a 100k capital gain. Separate issue. Would encourage you to run through the examples again.
This was fantastic, thank you so much. I had a company go belly up so I have 5K worth of shares. I would have dropped them all off, but now I know to only end in the red for 3k.
Great video! I can not tax loss harvest this year because I need high NOI to buy real estate this next year. But I will use this strategy in the future.
as i buy and hold investor, once i've harvested a loss of say, 10k, i could then swap out a position that has a 10k gain to offset the loss. but in your last example you suggest just letting the losses offset your ordinary income and keep carrying that forward until its all been exhausted (3k per year). why not sell a 7k gain to offset the 7k loss and leave the remaining 3k loss to offset ordinary income all in the current year? after all, i might find another 3k loss next year to harvest. seems like i could reduce my future capital gains taxes by deliberately realizing some gains this year, and still keep my $ in the market by just swapping funds.
I don't understand why the limit is only $3,000 a year deduction. Like what is that going to do if I had to sell out of a position with a $20K loss. I cannot deduct the other $17K??
This doesn't seem like something you would ever deliberately try and do, but would be great to take advantage of in less than ideal circumstances (aka suffering a loss but utilizing tax loss harvesting to minimize the financial hit). I imagine all your investments making money is the ideal situation and this is a way to recoup some money from an investment going south, right?
Why would you think tax loss harvesting is "something you would never deliberately try and do?" You'll almost always have specific tax lots with losses for any given year.
Does the tax loss harvesting ( TLH) strategy have an overall impact on your tax liability? For example, if I have a realized gain into Fidelity brokerage account and unrealized loss into Vanguard brokerage account so once I use TLH strategy it would have an overall / combined effect on my total tax liability. Please let me know. Thanks in advance!
Realizing the loss would offset the realized gain (at least partially) so you wouldn't owe as much in taxes. Consult your tax professional on your specific circumstances.
There is something no one has said in a harvest video I need to know. How many years can the money roll over once you harvest it? I heard someone say you can harvest $6000 in one year claim three that year and three the next. What if you have enough to roll over three years or four? Or should you only harvest what you need for that year or for two years at a time?
I know you can wash sale with an IRA if you bought the same security in an IRA after you sold it in a brokerage but what about 401K? If you have VOO in brokerage and you sold it at a loss but you have a S&P500 mutual fund in 401k of a different provider then vanguard would your next 401k contribution to that S&P500 fund be a wash sale
Is the $3K amount the same for everyone or is it higher for hedge funds for example? $3K seems like nothing for high value individuals (say Trump for example). How do those big guys do tax loss write offs?
Same for everyone. Remember $3k is the cap for reducing taxable income. The big guys - or anyone - may have $100k in gains and $99k in losses. If harvested, they now only owe capital gains taxes on $1k.
Can I continue to buy other securities during the 30/31 day window. For example: can I sell PFE at a loss but continue my automatic investments in other stocks? or do I have to not buy anything during the tax loss havesting window?
How can you offset realized loss overall -59k with a short term capital gains on my personal and carry forward the loss to be utilized next year instead of 3k a year til it’s used. I want to increase capital gains.
Hi, IM new to TLH- my $80K target date 2030 MF, bought in 2021, is in Taxable brokerage acct w some dividends (WRONG PLACE I KNOW) , It shows an "overall" , long term loss. Suddenly its miraculously doing better in 2024 (up 20%, but still overall is down ~12% loss since inception , 1)to do TLH does loss have to show specifically during the tax year Im planning doing the TLH ? (Im putting it against another soon to be realized taxable long term investment ($10K FSELX ) thats up 30% since Jan'24 , both funds have .65% fees, 2) is it best to wait, perhaps it too will show gain by end of '24 in this bull market. goal is I want to buy low fee index funds, w minimal dividends for this taxed brokerage acct . I really dislike this poorly managed fund, and have wanted to sell this mod high fee target date fund before another dive in the market,
In my opinion, no, because they aren't doing anything that you can't do yourself and their fee over the life of the portfolio would probably wipe out any benefit from TLH. I guess it depends on how much you value your time and if you really don't want to TLH yourself.
@@OptimizedPortfolio thank you for your reply. I am pertaining to wash sale rule of IRS. If I sold stock A at a loss for the purpose of tax loss harvesting then I use the proceeds to buy additional share of Stock B that I already have existing shares, will that violate the Wash-Sale Rule if IRS even if Stock A and Stock B are not similar and not in same industry?
What if I’m at a big loss on my last sell but I’m up on my current trade. Say I started year at 60k in portfolio, then I made a trade in November and have 50k in portfolio and closed the position. I opened a new position in December and is currently up 6k and expect it to continue rising. Should I sell the 6k position now and only have a realized loss of 4k for the year and pay less taxes on the gains for the trade? If I carried that 6k trade into next year wouldn’t I have to pay on that 6k?
3k this year can directly offset income, 7k loss carried forward for future years. "Tax gain harvesting" makes sense in lower income years. Watch the examples again.
Hi. Thanks for the explanation. If I understand correctly, should you keep track of the losses that you didn’t include for next year and keep doing it every year. In you example, you noted you can carry forward the 2K for next year, so I should keep note of these and know in which year I use it later? Also, do you do this end of year around December beginning? Considering we need to hold it off for 31 days, we will be in next year? These info aren’t clear and an example would have helped. Finally, should long term three fund portfolio investors should even worry about this? If you consider not to sell them until your retirement?
Yes, keep track of losses to use in future years. You can just look back at previous year's tax return. Sell order must clear before Dec. 31; that's the only requirement in terms of deadline. Up to you whether or not it's worth the effort. I noted in the video that on average it adds an estimated 14% to final portfolio value if done annually over 30 years.
@@OptimizedPortfolio thank you. If I’m not selling any stocks, like set and forget , I don’t have to do this? In other words, should I do TLH if I’ve no realized gains or losses?
Long term investors shouldn't have to worry about selling at large gains if they let their investment compound over time. The nest egg should be able to live off 1 to 3 % yield then pass on to future generations. Step up basis .
One main thing you forgot to mention is that it's still a LOSS. If you sell it, you're still losing that money. You're just getting a little back from the govt. for selling it. That's it.
I'm not sure what your point is or why that would require mentioning. This should be obvious by the nature of it being called loss harvesting. But again, provided your current marginal tax rate is greater than that of LTCG, in doing so and immediately buying a replacement fund that you sell for a gain later, you are still better off than if you hadn't realized/harvested the loss. That's the entire point of TLH and this video.
@@OptimizedPortfolio Yes I understand that. But, if you're going to keep it unrealized, then there's no loss to harvest. For long-term investors, surely, the assumption for any security is that it'd eventually go back up to where you bought it at.
@@loveanimals-0197 Yes, but again, you're better off harvesting that loss to reduce your current taxable income at your marginal tax rate. That's how you're able to add value over time. Hypothetically, if my income tax rate is 20% and my investment I originally bought for $100 has now dropped to $50 during the year, I harvest the $50 loss and save $10 in taxes that year. That investment later goes up to $150 - let's say 20 years later - where I sell. Since my new cost basis is $50, I have long term capital gains taxes on $100 at 15% so $15. 150 + 10 - 15 = $145 net. Had I not harvested the loss, I'd still have the original $100 cost basis so I'd owe 15% on $50 in gains or $7.50. 150 - 7.50 = $142.50 net. I'd encourage you to watch the last example again for the long-term investor you describe. Again, this is the entire point of TLH.
@@OptimizedPortfolio thanks. the difference in your example comes from the fact that you assume 20% taxes now and 15% taxes later. That's just the benefit of long-term capital gains and isn't that nothing to do with loss harvesting. Also most brokers would catch a wash sale if you bought similar price and made similar gains
@@loveanimals-0197 20% refers to the income tax rate in the example. 15% is the LTCG rate for most people. Wash sales refer to holding substantially identical securities within 30 days; nothing to do with the amount of gains. My example didn't even include reinvesting those tax savings, which would amplify the benefit over the long term, which is the 14% stat cited.
I still don't get the point of it. Say you can tax loss harvest to offset all your gain. Yeah, you don't pay any capital gains taxes... but you also don't have any gain. You may as well not invest and achieve the same outcome. No capital gain and no taxes. What am I missing?
You will pay capital gains taxes on any positions sold during the year with a gain, regardless of unrealized losses. Harvesting losses (realizing them) decreases that tax liability. I'd suggest watching the examples again.
Revisiting this a couple days later, I realized I perhaps should have been more specific with some numbers to illustrate. The 2 scenarios you describe are NOT "the same outcome." If I have $100 in realized gains and $100 in unrealized losses (i.e. not harvested), I'm still paying taxes on that $100 in gains. If I realize/harvest that $100 in losses, however, I've now offset my $100 in realized gains to zero so I owe zero capital gains taxes.
Do you harvest losses? If so, when and how?
Great video - simple and to the point. Thanks!
Thanks for watching!
Hey, excellent video. You mention that tax loss harvesting can offset up to 3k in capital gains or taxable income. So are you:
A. Saving only the tax liability on a 3k capital gain / 3k of taxable income (taxes on the 3k gain)
B. Saving up to 3k of tax liability on larger capital gains / total taxable income (For instance, a 10k capital gain with a 3k tax liability)
Option A is fine I guess, but option B would be a game changer! Thanks for your help.
Thanks!
The 3k limit is just for income offset. It reduces taxable income. It's a tax deduction, not a tax credit.
A 100k capital loss can offset a 100k capital gain. Separate issue.
Would encourage you to run through the examples again.
Very clear and to the point. Great video.
Thanks!
Thanks for the quick, yet comprehensive content - much obliged!
Glad you found it useful!
This was fantastic, thank you so much. I had a company go belly up so I have 5K worth of shares. I would have dropped them all off, but now I know to only end in the red for 3k.
Glad you found it helpful!
Happy Holidays! As always, love the videos!
Thanks, Nicholas! Likewise! :)
Great video. Thank you for information.
Glad it was helpful!
Great video! I can not tax loss harvest this year because I need high NOI to buy real estate this next year. But I will use this strategy in the future.
Thanks TJ!
Just to clarify, if my taxable income is $100k, and if I sell a stock for a $3k loss, then my taxable income would become $97k, right?
Correct
Great explanation!
Glad you think so!
Great video! The 14% increased account value… over what period of time? Thanks!
Thanks, Jason! 25 years. Great question; I should have included that.
Sounds like something I'd make up to feel better about losing money in the market 😮
wut
As 2022 was a tough year as well as parts of 2023, it is better to "offload" all my loser stocks, or, do it in $3,000 increments per year? Thank you!!
No objective reason to wait, as you can carry forward losses indefinitely.
Thank you so very much! I reallly like your videos and website. Many thanks for the super quick response!!@@OptimizedPortfolio
as i buy and hold investor, once i've harvested a loss of say, 10k, i could then swap out a position that has a 10k gain to offset the loss. but in your last example you suggest just letting the losses offset your ordinary income and keep carrying that forward until its all been exhausted (3k per year). why not sell a 7k gain to offset the 7k loss and leave the remaining 3k loss to offset ordinary income all in the current year? after all, i might find another 3k loss next year to harvest. seems like i could reduce my future capital gains taxes by deliberately realizing some gains this year, and still keep my $ in the market by just swapping funds.
Yes you could do that. Somewhat related, "tax gain harvesting" is an entire concept itself.
I don't understand why the limit is only $3,000 a year deduction. Like what is that going to do if I had to sell out of a position with a $20K loss. I cannot deduct the other $17K??
Because the IRS says so. You can carry forward the other $17k to use in subsequent years.
This doesn't seem like something you would ever deliberately try and do, but would be great to take advantage of in less than ideal circumstances (aka suffering a loss but utilizing tax loss harvesting to minimize the financial hit). I imagine all your investments making money is the ideal situation and this is a way to recoup some money from an investment going south, right?
Why would you think tax loss harvesting is "something you would never deliberately try and do?"
You'll almost always have specific tax lots with losses for any given year.
@@OptimizedPortfolio I maybe just don’t understand enough to fully grasp when it would be a good idea to take advantage of it.
@@aspromonte5179 Consider reviewing the examples in the video again.
Does the tax loss harvesting (
TLH) strategy have an overall impact on your tax liability? For example, if I have a realized gain into Fidelity brokerage account and unrealized loss into Vanguard brokerage account so once I use TLH strategy it would have an overall / combined effect on my total tax liability. Please let me know. Thanks in advance!
Realizing the loss would offset the realized gain (at least partially) so you wouldn't owe as much in taxes. Consult your tax professional on your specific circumstances.
There is something no one has said in a harvest video I need to know. How many years can the money roll over once you harvest it? I heard someone say you can harvest $6000 in one year claim three that year and three the next. What if you have enough to roll over three years or four? Or should you only harvest what you need for that year or for two years at a time?
No time limit.
@@OptimizedPortfolio Appreciate you
I know you can wash sale with an IRA if you bought the same security in an IRA after you sold it in a brokerage but what about 401K? If you have VOO in brokerage and you sold it at a loss but you have a S&P500 mutual fund in 401k of a different provider then vanguard would your next 401k contribution to that S&P500 fund be a wash sale
Depends on whether or not they're substantially identical. Account type doesn't matter. Consult your tax professional.
Is the $3K amount the same for everyone or is it higher for hedge funds for example? $3K seems like nothing for high value individuals (say Trump for example). How do those big guys do tax loss write offs?
Same for everyone. Remember $3k is the cap for reducing taxable income. The big guys - or anyone - may have $100k in gains and $99k in losses. If harvested, they now only owe capital gains taxes on $1k.
@@OptimizedPortfolio ok thank you.
Is it required to buy a substitute fund after selling at a loss? Does holding cash void your harvest?
No
@@OptimizedPortfolio Got it.. Thanks.
Can I continue to buy other securities during the 30/31 day window. For example: can I sell PFE at a loss but continue my automatic investments in other stocks? or do I have to not buy anything during the tax loss havesting window?
Yes, you can buy other things. The window only applies to the security or securities you are harvesting.
thank you@@OptimizedPortfolio
anytime
When can someone file for Tax Loss Harvesting. Is this done same period as filing your taxes?
Yes, with tax return.
How can you offset realized loss overall -59k with a short term capital gains on my personal and carry forward the loss to be utilized next year instead of 3k a year til it’s used. I want to increase capital gains.
Roll a T-bills fund. Consult a tax professional.
Hi, IM new to TLH- my $80K target date 2030 MF, bought in 2021, is in Taxable brokerage acct w some dividends (WRONG PLACE I KNOW) , It shows an "overall" , long term loss. Suddenly its miraculously doing better in 2024 (up 20%, but still overall is down ~12% loss since inception ,
1)to do TLH does loss have to show specifically during the tax year Im planning doing the TLH ? (Im putting it against another soon to be realized taxable long term investment ($10K FSELX ) thats up 30% since Jan'24 , both funds have .65% fees,
2) is it best to wait, perhaps it too will show gain by end of '24 in this bull market. goal is I want to buy low fee index funds, w minimal dividends for this taxed brokerage acct . I really dislike this poorly managed fund, and have wanted to sell this mod high fee target date fund before another dive in the market,
1. You can harvest individual tax lots with losses.
2. Market timing tends to be more harmful than helpful.
Is it worth creating a portfolio in a product like Wealthfront that will automatically TLH while allowing you to keep your own portfolio?
In my opinion, no, because they aren't doing anything that you can't do yourself and their fee over the life of the portfolio would probably wipe out any benefit from TLH. I guess it depends on how much you value your time and if you really don't want to TLH yourself.
@@OptimizedPortfolio Thanks for the response. I’ve learned a lot from Optimized Portfolio and am implementing the Ginger Ale Portfolio in an IRA.
@@davidsoltesz1867 Glad to hear it! :)
Can you sell a stock at a loss and buy a different stock in different industry that already have in portfolio?
Not exactly sure what you're asking.
@@OptimizedPortfolio thank you for your reply. I am pertaining to wash sale rule of IRS. If I sold stock A at a loss for the purpose of tax loss harvesting then I use the proceeds to buy additional share of Stock B that I already have existing shares, will that violate the Wash-Sale Rule if IRS even if Stock A and Stock B are not similar and not in same industry?
@@qrizpol1767 That would be fine, as Stock A and Stock B are not substantially identical.
@@OptimizedPortfolio got it thank you!!!
What if I’m at a big loss on my last sell but I’m up on my current trade. Say I started year at 60k in portfolio, then I made a trade in November and have 50k in portfolio and closed the position. I opened a new position in December and is currently up 6k and expect it to continue rising. Should I sell the 6k position now and only have a realized loss of 4k for the year and pay less taxes on the gains for the trade? If I carried that 6k trade into next year wouldn’t I have to pay on that 6k?
3k this year can directly offset income, 7k loss carried forward for future years. "Tax gain harvesting" makes sense in lower income years. Watch the examples again.
Hi. Thanks for the explanation. If I understand correctly, should you keep track of the losses that you didn’t include for next year and keep doing it every year. In you example, you noted you can carry forward the 2K for next year, so I should keep note of these and know in which year I use it later? Also, do you do this end of year around December beginning? Considering we need to hold it off for 31 days, we will be in next year? These info aren’t clear and an example would have helped.
Finally, should long term three fund portfolio investors should even worry about this? If you consider not to sell them until your retirement?
Yes, keep track of losses to use in future years. You can just look back at previous year's tax return. Sell order must clear before Dec. 31; that's the only requirement in terms of deadline. Up to you whether or not it's worth the effort. I noted in the video that on average it adds an estimated 14% to final portfolio value if done annually over 30 years.
@@OptimizedPortfolio thank you. If I’m not selling any stocks, like set and forget , I don’t have to do this? In other words, should I do TLH if I’ve no realized gains or losses?
@@SenthilRameshJV Watch the last example again at 05:58.
Long term investors shouldn't have to worry about selling at large gains if they let their investment compound over time. The nest egg should be able to live off 1 to 3 % yield then pass on to future generations. Step up basis .
One main thing you forgot to mention is that it's still a LOSS. If you sell it, you're still losing that money. You're just getting a little back from the govt. for selling it. That's it.
I'm not sure what your point is or why that would require mentioning. This should be obvious by the nature of it being called loss harvesting.
But again, provided your current marginal tax rate is greater than that of LTCG, in doing so and immediately buying a replacement fund that you sell for a gain later, you are still better off than if you hadn't realized/harvested the loss.
That's the entire point of TLH and this video.
@@OptimizedPortfolio Yes I understand that. But, if you're going to keep it unrealized, then there's no loss to harvest. For long-term investors, surely, the assumption for any security is that it'd eventually go back up to where you bought it at.
@@loveanimals-0197 Yes, but again, you're better off harvesting that loss to reduce your current taxable income at your marginal tax rate. That's how you're able to add value over time. Hypothetically, if my income tax rate is 20% and my investment I originally bought for $100 has now dropped to $50 during the year, I harvest the $50 loss and save $10 in taxes that year. That investment later goes up to $150 - let's say 20 years later - where I sell. Since my new cost basis is $50, I have long term capital gains taxes on $100 at 15% so $15. 150 + 10 - 15 = $145 net. Had I not harvested the loss, I'd still have the original $100 cost basis so I'd owe 15% on $50 in gains or $7.50. 150 - 7.50 = $142.50 net. I'd encourage you to watch the last example again for the long-term investor you describe. Again, this is the entire point of TLH.
@@OptimizedPortfolio thanks. the difference in your example comes from the fact that you assume 20% taxes now and 15% taxes later. That's just the benefit of long-term capital gains and isn't that nothing to do with loss harvesting. Also most brokers would catch a wash sale if you bought similar price and made similar gains
@@loveanimals-0197 20% refers to the income tax rate in the example. 15% is the LTCG rate for most people. Wash sales refer to holding substantially identical securities within 30 days; nothing to do with the amount of gains. My example didn't even include reinvesting those tax savings, which would amplify the benefit over the long term, which is the 14% stat cited.
I still don't get the point of it. Say you can tax loss harvest to offset all your gain. Yeah, you don't pay any capital gains taxes... but you also don't have any gain. You may as well not invest and achieve the same outcome. No capital gain and no taxes. What am I missing?
You will pay capital gains taxes on any positions sold during the year with a gain, regardless of unrealized losses. Harvesting losses (realizing them) decreases that tax liability. I'd suggest watching the examples again.
Revisiting this a couple days later, I realized I perhaps should have been more specific with some numbers to illustrate. The 2 scenarios you describe are NOT "the same outcome." If I have $100 in realized gains and $100 in unrealized losses (i.e. not harvested), I'm still paying taxes on that $100 in gains. If I realize/harvest that $100 in losses, however, I've now offset my $100 in realized gains to zero so I owe zero capital gains taxes.
Thanks for the video but you are talking too fast esp when people are trying to learn and hear and remember all the details at once.
Thanks for the feedback. People used to say I was too slow. Thankfully UA-cam lets you adjust the playback speed by clicking the gear icon.