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Post by Deleted on Dec 12, 2021 17:01:48 GMT
I have 2 fidelity funds that distributed sizable long term capital gains. I also have short term losses in same funds, equivalent to about 2/3 of the gain. Not happy with this.
The only other long term capital losses I have are in two individual stocks, both of which I want to keep. The losses are about 1/3 of the long term capital gain.
I don't have much in the way of short term capital gains nor any carryover losses.
I am thinking about selling the funds, realizing the short term loss. Also thinking about realizing the long term losses on the 2 stocks. I think I can buy them back - believe wash sales rules will apply though.
This would then offset my unexpected long term gains. These are international and emerging market funds which can be replaced.
Does anybody see something I'm missing? Any other advice?
Thanks in advance.
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Post by uncleharley on Dec 12, 2021 17:09:41 GMT
You haven't missed very much if anything. Of course I am no expert.
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Post by yogibearbull on Dec 12, 2021 17:10:03 GMT
Take tax-loss and buy some thing related (another stock or OEF or ETF) right away.
Net tax-loss can offset up to $3,000/yr of ordinary income and the excess tax-loss can be carried over to future years. In old days, commissions caused friction, but most things trade commission-free now.
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Post by Deleted on Dec 13, 2021 15:59:53 GMT
But am I correct - I have to pay tax on CG, yet my account shows a capital loss? YBB - i saw your explanation and thank you. I feel a bit dense here. Why wouldn't I sell, book the loss and use to offset the gain? I am missing something.
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Post by yogibearbull on Dec 13, 2021 16:17:04 GMT
Unfortunately yes. Tax law says that mutual fund owners have to pay taxes on realized gains BY the fund managers. These gains must be distributed and the fund owners that own the fund before the ex-div date must pay taxes on these CGs regardless of whether they have overall profit or loss (you have tiny loss in one, small profit in another). If you run what-if tax scenarios for selling them right away, you will find that there isn't much tax-loss harvesting here.
You have owned these funds for almost a year. But think of those unlucky ones who owned them only for a day before the ex-div date - fund prospectuses warn about that buying of tax liability ahead of yearend distributions.
ETFs don't have this issue. Generally, index funds don't have this issue either but some indexes funds are making large yearend distributions this year (VINIX, TILIX, etc).
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Post by Deleted on Dec 13, 2021 21:02:27 GMT
Bear with me (no pun intended). So I bought on 1/11/21 at 54.31 a share. Then on 12/3/21 my CG and dividend distribution are reinvested at $51.51. It's more than 10% combined. So, now my account is showing a 2.74% loss and my basis has been adjusted to $54.03.
So I have this large CG I have to pay tax on. But, if I sold my position, I would realize a 2.74% ST loss. Wouldn't it make sense to realize that loss?
I see what you are saying regarding the basis on the reinvested gain/dividend. It was bumped up $2.52 a share, and my original purchase decreased by .3 a share.
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Post by Chahta on Dec 14, 2021 4:05:40 GMT
But am I correct - I have to pay tax on CG, yet my account shows a capital loss? Â YBB - i saw your explanation and thank you. I feel a bit dense here. Why wouldn't I sell, book the loss and use to offset the gain? I am missing something. Basically because they get entered on your 1040 on different lines. CG tax is calculated separately from tax on income.
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Post by Deleted on Dec 14, 2021 11:04:18 GMT
Right. Got that. I think it must be the adjusted basis is why it wouldn't make sense to sell, netting the loss against gain. It is not intuitive.
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Post by anitya on Dec 14, 2021 19:55:48 GMT
A related but different question: If I close out an exiting losing call option but replace it with another call on the same underlying, with a different strike price and different expiration, is that a wash sale? Feel free to direct me to the literature on this.
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Post by yogibearbull on Dec 14, 2021 20:04:51 GMT
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Post by anitya on Dec 14, 2021 20:38:41 GMT
Thanks, Yogi. I suspected that would be the answer though incorrect if you compare in the context of debt securities where different maturities and stated interest rates would allow one to trigger the loss. Most of the loss triggering on debt securities is sought by banks and corporations but a lot of loss triggering on equities is sought by other investors, which presumably drives differing tax policies.
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hondo
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Post by hondo on Dec 14, 2021 21:04:32 GMT
I'm a little confused about some of the post above,(Of course, I'm easily confused), so I'd like to ask: - say a person owns a fund or stock that is going to have a very large CG distribution on 12/30/21. If he/she sells the fund/stock before the "record date", then he/she would owe No tax on the year end distribution, but only tax on the gain of the fund/stock when sold. That would be correct would it not? Something said in one of the above post made me think the person would still pay tax of the distribution.
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Post by yogibearbull on Dec 14, 2021 21:15:25 GMT
I'm a little confused about some of the post above,(Of course, I'm easily confused), so I'd like to ask: - say a person owns a fund or stock that is going to have a very large CG distribution on 12/30/21. If he/she sells the fund/stock before the "record date", then he/she would owe No tax on the year end distribution, but only tax on the gain of the fund/stock when sold. That would be correct would it not? Something said in one of the above post made me think the person would still pay tax of the distribution. If a fund is sold BEFORE the ex-div date, then the holder will NOT get distribution, and so would NOT be liable for tax on distributions. In fact, many sell iffy funds ahead of large distributions. There is some artificiality in all these taxable distributions but the US tax laws are what they are. They are designed to make the IRS happy, not the fund holders. In many countries, one is taxed only on fund sale, not like here.
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Post by Deleted on Dec 14, 2021 21:23:24 GMT
I'm so confused I can't tell you! In answer to your question - I have to believe if I sold the fund before the CG distribution, I wouldn't be taxed on it.
I got the distribution on 12/3. Automatic reinvestment. But if I sold, I would have a short term loss.
I don't quite understand how I get a LT CG when I haven't held the fund a year, but okay, that's the way they do it. I evidently just step into the game and take on the tax timing of the fund. The CGs were realized on holdings held more than a year.
I still don't know why it wouldn't be a good idea to realize a loss and offset the gain. I have more in the account than I put in, so in absolute terms I have a gain.
I have a feeling after YBBs comment though it wouldn't make sense. There is accounting going on, I don't understand yet.
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hondo
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Post by hondo on Dec 14, 2021 21:34:58 GMT
I'm a little confused about some of the post above,(Of course, I'm easily confused), so I'd like to ask: - say a person owns a fund or stock that is going to have a very large CG distribution on 12/30/21. If he/she sells the fund/stock before the "record date", then he/she would owe No tax on the year end distribution, but only tax on the gain of the fund/stock when sold. That would be correct would it not? Something said in one of the above post made me think the person would still pay tax of the distribution. If a fund is sold BEFORE the ex-div date, then the holder will NOT get distribution, and so would NOT be liable for tax on distributions. In fact, many sell iffy funds ahead of large distributions. There is some artificiality in all these taxable distributions but the US tax laws are what they are. They are designed to make the IRS happy, not the fund holders. In many countries, one is taxed only on fund sale, not like here. Thank you ybb. I thought that should be the way it works, but then started having a doubt.
Edit to add: The way it is now, we get taxed on the distributions and then we get taxed on the sale. So actually we pay tax twice on the distributions.
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Post by yogibearbull on Dec 14, 2021 21:43:18 GMT
If a fund is sold BEFORE the ex-div date, then the holder will NOT get distribution, and so would NOT be liable for tax on distributions. In fact, many sell iffy funds ahead of large distributions. There is some artificiality in all these taxable distributions but the US tax laws are what they are. They are designed to make the IRS happy, not the fund holders. In many countries, one is taxed only on fund sale, not like here. Thank you ybb. I thought that should be the way it works, but then started having a doubt.
Edit to add: The way it is now, we get taxed on the distributions and then we get taxed on the sale. So actually we pay tax twice on the distributions.
Well, NO. Distributions are added to your cost basis (by the broker) so that you DO NOT pay tax twice on distributions. Please stay unconfused 😎.
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Post by Deleted on Dec 14, 2021 22:47:38 GMT
Yes. I think it is the cost basis adjustment that I was missing too.
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hondo
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Post by hondo on Dec 14, 2021 23:30:00 GMT
Thank you ybb. I thought that should be the way it works, but then started having a doubt.
Edit to add: The way it is now, we get taxed on the distributions and then we get taxed on the sale. So actually we pay tax twice on the distributions.
Well, NO. Distributions are added to your cost basis (by the broker) so that you DO NOT pay tax twice on distributions. Please stay unconfused 😎. Okay, I see. I better quit for the day. I'll just blame it on old age.
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Post by Deleted on May 5, 2022 12:21:27 GMT
I have unrealized losses in FEMKX. I have realized gains I need to offset. I want to avoid unplanned capital gain distributions from FEMKX. I still want to hold emerging markets. Thinking of selling FEMKX - realizing the loss to offset the cap gains. Any thoughts on a good replacement emerging markets fund? Any timing issues I should consider here?
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Post by Deleted on May 5, 2022 12:56:02 GMT
I have unrealized losses in FEMKX. I have realized gains I need to offset. I want to avoid unplanned capital gain distributions from FEMKX. I still want to hold emerging markets. Thinking of selling FEMKX - realizing the loss to offset the cap gains. Any thoughts on a good replacement emerging markets fund? Any timing issues I should consider here? FEDDX has held up much better YTD than FEMKX.
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Post by mnfish on May 5, 2022 13:19:40 GMT
"I still want to hold emerging markets."
FWIW, Wells Advisors rates emerging markets as "most unfavorable" currently. So that would mean it has further to fall. If this is in a taxable acct why not find an equal ETF?
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Post by Capital on May 5, 2022 13:29:20 GMT
FYI capital losses will offset capital gains dollar for dollar. If there are capital losses in excess of capital gains you can use up to $3000 annually to offset other income until the capital losses carry forward is used up. If you have capital gains in a future year the capital loss carry forward will offset those dollar for dollar.
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Post by Deleted on May 5, 2022 14:11:44 GMT
Why hold losers? Or emerging markets funds in this inflationary, rising rate market environment which isn't supportive of non-commodity type of investments. Or unnecessarily pay capital gains taxes when all those distributions do is reduce the Net Asset Value. If you are still working , you likely don't need to live off of them as some retired folks may.
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Post by fishingrod on May 5, 2022 14:21:19 GMT
To confuse everybody here. Think of all of your buys of a fund as separate, and this includes dividends that have been reinvested. We get taxed on the distributions/dividends/interest regardless of whether we reinvest that money to buy more shares or not. If one chooses to buy more shares then those shares are added to your cost basis. Then if/when one sells they would have either capital gains or capital losses on each share that they sell.
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Post by Deleted on May 5, 2022 15:03:35 GMT
My opinion is years like this are the perfect opportunity to make your taxable portfolio more tax efficient for the long term.
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Post by retiredat48 on May 5, 2022 17:59:00 GMT
I have unrealized losses in FEMKX. I have realized gains I need to offset. I want to avoid unplanned capital gain distributions from FEMKX. I still want to hold emerging markets. Thinking of selling FEMKX - realizing the loss to offset the cap gains. Any thoughts on a good replacement emerging markets fund? Any timing issues I should consider here? Briefly: --Consider EM Funds that are ex-China...that is, minimal or no China. Funds like this exist. --EM funds would be helped by falling dollar. Dollar is at new highs range now. --Bond guru J Gundlach says he is very close to pulling trigger to recommend/buy EM stocks and bonds now. --EM companies often relied on commodity type exports...which was bad in last decade. Suggest this may a good place going forward. If you don't want this, a wisdom tree consumer-based etf exists for EM consumer only fund. --If buy EM bond funds, consider "unhedged" ones...that is, they do not hedge against the dollar. So if dollar falls, the fund dividends/returns will be worth more. R48
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Post by Deleted on May 5, 2022 18:46:21 GMT
Thanks - EM is part of my overall portfolio allocation for the long term - 10+ years. I do like the idea of ex-China.
Edit - Thanks skip and R48 - thanks for the mention of FEDDX - I swapped about 1/6th today. I also will swap some to EMXC.
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Post by saratoga on May 5, 2022 21:59:24 GMT
Check out T. Rowe Price Africa & Middle East I PRAMX - ytd 10.91% before today. Investor share is TRAMX.
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Post by Deleted on May 24, 2022 1:48:14 GMT
My opinion is years like this are the perfect opportunity to make your taxable portfolio more tax efficient for the long term. I like the way you think! So - as mentioned - foolishly put FEMKX and FIGRX in my taxable account. I have a number of etfs I could switch them to. For FEMKX - I thought about IEMG and EMXC in my taxable For FIGRX - I have IXUS and VEA in my taxable. I also have VSS. Does anyone suggest any other ETFs? Does anyone see any tax surprises from these etfs??
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Post by chang on May 24, 2022 6:10:04 GMT
My opinion is years like this are the perfect opportunity to make your taxable portfolio more tax efficient for the long term. I like the way you think! So - as mentioned - foolishly put FEMKX and FIGRX in my taxable account. I have a number of etfs I could switch them to. For FEMKX - I thought about IEMG and EMXC in my taxable For FIGRX - I have IXUS and VEA in my taxable. I also have VSS. Does anyone suggest any other ETFs? Does anyone see any tax surprises from these etfs?? That’s one of my goals for 2022: improve tax efficiency. Ideally I would like to get most actively managed funds into tax deferred and stocks/ETFs/index funds in taxable. The only thing I'm unsure of is whether to leave VWILX in taxable, or move to an IRA. As a rule, I keep all dividend paying foreign equities in taxable, so I can claim the tax credit. VWILX holds mostly growth stocks (and shows a fairly small 1.24% TTM yield, per M*). Despite its decline I am still sitting on a profit, so selling it and rebuying in an IRA does not create a tax loss for harvesting; on the contrary, it generates a capital gain. But VWILX did generate a nasty distrubution last year, and I expect it will continue to do so in the future. So I am just not sure whether to move it, or leave it alone.
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