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Wash Sale Strategy (exciting tax stuff)


smiller

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OK, I know the advice I am about to get is worth what I'm paying for it, but...

 

Like most everyone I've seen significant losses in the basis of several mutual funds I own this year. While I am a long-term investor and it is not my intention to sell right now near the bottom (I hope...) it would still seem wise to make some sales in December to record the losses and simply repurchase after 31 days (in order to avoid a wash sale.) Given the current economic situation it seems that the liklihood of any sunstantial increase in value is very unlikely in that time period so not much to lose, and a lot of capital losses to gain. Is there any (tax law-related) reason to not do this?

 

 

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If you are a long term investor you may end up saving some tax now and paying more tax later when tax rates are likely to be much higher..

 

I would not wait 30 days..I would reinvest in something similar but not the exact security.

 

If you plan to reinvest the tax savings now you may or may not help yourself..

 

I have decided against doing as you are considering but I am subject to changing my mind.. :)

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All I'm trying to do is just book some capital losses... I don't see how I would end up paying more taxes as a result of this(?) The gains on the sold/repurchased stuff would be in the short-term category for a year so I suppose there could be a little increased liability there (if there is much growth next year, that is) but that wouldn't likely be much. Unless I am missing something...

 

As far as not waiting and just buying something in a slightly different asset class... yeah, maybe that would be better...

 

 

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Lets_Play_Two
OK, I know the advice I am about to get is worth what I'm paying for it, but...

 

Like most everyone I've seen significant losses in the basis of several mutual funds I own this year. While I am a long-term investor and it is not my intention to sell right now near the bottom (I hope...) it would still seem wise to make some sales in December to record the losses and simply repurchase after 31 days (in order to avoid a wash sale.) Given the current economic situation it seems that the liklihood of any sunstantial increase in value is very unlikely in that time period so not much to lose, and a lot of capital losses to gain. Is there any (tax law-related) reason to not do this?

 

 

I would suggest only taking losses to offset any gains you have this year. Even though the funds are down, they may still be paying taxable dividends at this time. Of course you can also go up to $3000 of losses to offset ordinary income. I wouldn't take losses simply to carry them over to future years. Having more in cash for 31 days would not be something I would lose sleep over and it might give you the opportunity to consider if there are other funds that may be more appropriate for you going forward.

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Lets_Play_Two
All I'm trying to do is just book some capital losses... I don't see how I would end up paying more taxes as a result of this(?)

 

You lower the tax basis of your investment and would start to generate gains rather than just recovering losses as the market rises again. If the capital gains tax rate goes up, you could end up paying more tax than the benefit you receive now. But that is future tax planning.

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OK, I know the advice I am about to get is worth what I'm paying for it, but...

 

Like most everyone I've seen significant losses in the basis of several mutual funds I own this year. While I am a long-term investor and it is not my intention to sell right now near the bottom (I hope...) it would still seem wise to make some sales in December to record the losses and simply repurchase after 31 days (in order to avoid a wash sale.) Given the current economic situation it seems that the liklihood of any sunstantial increase in value is very unlikely in that time period so not much to lose, and a lot of capital losses to gain. Is there any (tax law-related) reason to not do this?

 

 

no tax related law not to do what you described which is the wash sale rules. not licensed to give investment advice. :)

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You lower the tax basis of your investment and would start to generate gains rather than just recovering losses as the market rises again. If the capital gains tax rate goes up, you could end up paying more tax than the benefit you receive now.

Ah yes, I see, of course. I managed to overlook that rather obvious factor. And hence your comment about generating only enough loss to offset this years gains. Thanks.

 

I think capital gain taxes are indeed going up at some point. Perhaps not right away due to the weak market, but eventually... perhaps making the strategy questionable in the long term.

 

 

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+ 1 to Bill's advice. Also know that you don't need to go to cash to realize the loss - you only need to switch to another fund. The investment company running your fund likely offers a free switching ability to additional funds. If you want to stay in the market, you likely have plenty of choices.

 

Incidentally, capital gains taxes are GOOD. Embrace them when you get them.

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Dave McReynolds

I agree with advice given so far to not sell the shares purely for tax reasons unless you need the losses to offset current gains. Incurring broker's commissions to stockpile losses for possible future use doesn't seem like a very good deal to me.

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Well these are mutual funds that incur no commissions or sales charges, but my rep is giving the same advice as everyone here... sell to offset this year's gains but it's questionable territory to go much beyond that. So I guess that's what I'll do.

 

Thanks all.

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