Tax Loss Harvesting Bad for PP?

General Discussion on the Permanent Portfolio Strategy

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Tyler
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Re: Tax Loss Harvesting Bad for PP?

Post by Tyler » Thu Sep 24, 2020 11:13 am

If I'm understanding your argument correctly, I think you're misunderstanding the tax treatment.

Yes, gold is taxed as a collectible. That just means that 1) it is taxed as ordinary income with no preferential long-term rates, and 2) the tax cap is 28% even in the highest tax brackets. But (to my knowledge) it does not affect how tax loss harvesting and carry-forward losses work.

Sell gold at a loss, and you can use that capital loss to offset capital gains in other assets like stocks and bonds (and vice versa). Any excess losses can be carried forward just like any other asset. The 3k limit only applies to income (earned income, dividends, interest), not future capital gains. So any future capital gains from any asset can be fully offset by any capital losses you have carried over on the books with no 3k limit.

I'm not sure where you're getting the idea that the rules for gold carry-forward deduction limits are different than that for any other asset. Do you have a source for that?

BTW, if you happened to be audited I'd be surprised if the IRS didn't consider your proposed swap of GLD for IAU a wash sale. I'm no expert on that, but to be safe you might consider just sitting on cash for the 30 days.
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Re: Tax Loss Harvesting Bad for PP?

Post by Tyler » Thu Sep 24, 2020 12:45 pm

tomfoolery wrote:
Thu Sep 24, 2020 11:50 am
Suppose you in the 12% tax bracket. In 2020 you realize 20k of gains in GLD. In 2021 you realize 20k of gains in TLT and 20k of losses in SPY. You will pay the collectibles tax rate of 28% in 2020 on your 20k of gains, in spite of being in the 12% tax bracket.
The last sentence is incorrect. Collectibles taxes are the lesser of your nominal tax rate and 28%. So in this situation, your tax on the gold gains would be 12%. See here for more info. However, your overall point is true. Using capital losses to offset long-term stock or bond gains (that are not taxed) is less desirable than using them to offset gold gains (that are taxed).

tomfoolery wrote:
Thu Sep 24, 2020 11:50 am
Suppose GLD shoots up in 2021 before I buy a house. I then might have a $30k gain in my taxable GLD of which I'm paying 28% collectibles tax on. And of which I can only offset $3k from my prior year losses against. So I'm paying 28% of the $27k gain.
The 3k carryover limit only applies to offsetting income, not capital gains. If you have $20k in losses in 2020, $3k will be used to offset 2020 income and you can use all of the remaining $17k to offset capital gains in 2021. So if you're in the 12% tax bracket and have a $30k gain in gold next year, the most you'll pay in taxes is 12% of your net $13k gains (assuming they can't be further offset in other ways).

BTW, don't take my word for it. TurboTax is a great tool to game out tax plans for your own personal situation.
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