As the end of the year approaches, it seems like everyone is looking for ways to feel better about the losses sitting in their investment accounts. One strategy that has gained some mainstream popularity is tax loss harvesting. In today’s newsletter I'll explain what tax loss harvesting is, how I personally approach it, and why I believe the benefits are often exaggerated.
I am lighter on bonds than I should be but have a larger cash emergency fund/house fund currently which I mentally (but not in the above %) use to justify the lower bond allocation.
Dec 27, 2022·edited Dec 27, 2022Liked by Andre Nader
Hey Andre, in step 5, shouldn't the warning be about FTIHX, not FZILX? My understanding of wash sales is that you want to avoid rebuying the fund you _sold_.
Thanks for the guide, this is the clearest guide to tax loss harvesting I've found. I also appreciate the links to kitces.com for more detail.
Andre, I wanted to understand how does the carry-over loss apply to future gains? E.g. I had a $10000 gain in 2022 and a loss of $20000. That will make my net loss to be -$3000 (2022) and a carry-over loss of -$7000 for next year. Now, if I have another $10000 gain in 2023, $10000 in 2024, and $10000 in 2025 - can I offset all $7000 loss against the 2023 gain and reduce it to $3000? Or, can I only offset $3000 loss in 2023 reducing it to $7000, carry $4000 loss to 2024, and similarly $1000 loss to 2025?
Thank you for the detailed and clear explanation. I have always been confused by people lauding tax harvesting but never mentioning the fact that the cost basis would be lower and therefore you would still need to pay taxes on that difference down the line. I had not realized, though, that you are switching an income tax rate by a long-term capital gains rate, which is of course where the advantage is. Now I finally understand the whole thing.
I am lighter on bonds than I should be but have a larger cash emergency fund/house fund currently which I mentally (but not in the above %) use to justify the lower bond allocation.
I’ll increase the bond allocation further as I approach FIRE and will be heavily influenced by this series: https://earlyretirementnow.com/safe-withdrawal-rate-series/?amp
Hey Andre, in step 5, shouldn't the warning be about FTIHX, not FZILX? My understanding of wash sales is that you want to avoid rebuying the fund you _sold_.
Thanks for the guide, this is the clearest guide to tax loss harvesting I've found. I also appreciate the links to kitces.com for more detail.
Andre, I wanted to understand how does the carry-over loss apply to future gains? E.g. I had a $10000 gain in 2022 and a loss of $20000. That will make my net loss to be -$3000 (2022) and a carry-over loss of -$7000 for next year. Now, if I have another $10000 gain in 2023, $10000 in 2024, and $10000 in 2025 - can I offset all $7000 loss against the 2023 gain and reduce it to $3000? Or, can I only offset $3000 loss in 2023 reducing it to $7000, carry $4000 loss to 2024, and similarly $1000 loss to 2025?
Hi Andre, curious about your 56/34/10 or 56% domestic, 34% international, 10% bonds asset allocation. Why/how did you arrive at that split?
Thank you for the detailed and clear explanation. I have always been confused by people lauding tax harvesting but never mentioning the fact that the cost basis would be lower and therefore you would still need to pay taxes on that difference down the line. I had not realized, though, that you are switching an income tax rate by a long-term capital gains rate, which is of course where the advantage is. Now I finally understand the whole thing.