Key insights
- The author is tax loss harvesting to offset realized gains by selling VTI and VXUS and buying FSKAX and FTIHX, respectively. The goal is to reduce the estimated tax payment due to capital gains. The strategy hinges on avoiding the wash-sale rule and the assumption that FSKAX/FTIHX are not 'substantially identical' to VTI/VXUS. If successful, this could slightly reduce tax liabilities, a marginal positive for market participants.
Need a quick gut check that this all makes sense.
Left my FA in January to go on my own. Sold all positions in a 15+ fund portfolio to move self-managed 80/20 VTI/VXUS. Put the 1.3% advisor fee and 0.3% ETF fees back into my pocket.
I incurred $44k in realized gains with the liquidation. Estimated tax payment is due before 4/15 - roughly $13k between Fed & State. Don't need to liquidate any more positions to pay this, I have had it off to the side in cash.
Current unrealized losses on the year so far are $12,500.
I want to liquidate the VTI to move to FSKAX and liquidate the VXUX to move to FTIHX – are these “substantially identical”? Seems like not even the IRS knows.
Turn off DRIP to avoid wash rule.
Turn my $44k realized gains into $31.5k. Submit estimated tax payment on only $31.5k now.
If the market continues on it’s downward trajectory, wait until I can lock in another decently large loss to switch back to VTI/VXUS (after 31+ days), in hopes of recouping some (or all) of the estimated tax payment with my refund during tax season next year.
All makes sense? Am I missing anything?