We hope this message finds you healthy and well as we shelter in place. You may have noticed or will soon see some recent trades in your taxable account(s). The recent stock market volatility has no doubt been painful but, on the upside, it has provided us with the opportunity to do some Tax Loss Harvesting.
We do this to realize a tax loss that can be used in the future to offset capital gains and defer taxes. If you don’t have capital gains to offset the full capital loss, you can use the loss to reduce ordinary income, up to $3,000 per year (if you have more than $3,000, it carries forward to future years).
Generally speaking, the sales proceeds were or will be reinvested in a similar fund, so that the overall asset allocation and performance characteristics of the portfolio remain unchanged. After 30 days (which meets IRS rules for realizing losses), the replacement fund will be sold and the proceeds will be reinvested in the original fund.
There are several exceptions to that general plan.
• In a few instances, there is no appropriate replacement fund so the proceeds will be held in cash for 30 days and then reinvested in the same fund.
• In some cases, the investment that was sold is no longer the preferred fund. In these situations, the replacement fund is actually our preferred fund so there is no need to sell it after 30 days. It will remain in your portfolio as the new investment choice.
As always, if you have any questions or concerns, or if you would like to discuss your portfolio, please feel free to contact us.
Stay well,
The Meritas Team