tax loss harvesting

[overtaxed13]

I expect a mutual fund to report a large capital gain distribution for 2022.  In years past, this fund has always reported these on Form 1099-DIV, Box 2a.  No redemptions involved.

I have no other capital gains nor losses for 2022.

I have ordinary income well in excess of the capital gain distribution.

I have the opportunity to tax loss harvest by selling various stocks, either short term loss or long term loss.

Please advise on which to choose and why.

[Critter-3]

Losses are losses no matter the holding period ... all cap gains and losses are netted against each other on the same Sch D form. 

The only thing you have to watch out for is a wash sale ... so anything sold at a loss cannot be repurchased within 30 days prior to and after the sale date. 

[tagteam]

@Critter-3 is correct, and also ensure that you are not violating the holding period for any dividends (from the shares you are selling) to be considered "qualified dividends".

See https://www.irs.gov/publications/p550#en_US_2021_publink100010075

[Hal_Al]

As others have said, capital gains distributions (box 2a of a 1099-DIV) can be offset by either long or short term capital losses. 

Capital gains distributions (box 2a of a 1099-DIV) are taxed at long term capital gains tax rates, some of which can be, for lower income people, 0%.  I assume by "I have ordinary income well in excess of the capital gain distribution", you mean that you know that your Capital gains distributions will be subject to the 15% rate or higher. And, that is why you want to offset them with losses. 

[fanfare]

The qualification of dividends depends on holding before or after the dividend date, so any dividends on a fund or stock held at least two months will be qualified.

A reinvested dividend can cause a wash sale on your first shares out (FIFO)  up to the number of shares obtained from the last reinvested dividend, if you are selling the first shares at a loss.

Same for purchases with new money on an automated schedule (i.e. monthly).

[overtaxed13]

Thank each one of you for the thoughtful answers.  I am trying to do some proactive tax planning and have not yet sold any stocks for tax loss harvesting in 2022.  I am trying to decide whether or not it is a good idea for me to sell some losing stocks to reduce my taxable income.  I will be in either the 24% or 32% tax bracket for 2022.  I cannot yet determine which, because I do not know what the distributions will be.  However, the Box 2a figure will probably be in the vicinity of $80-90,000.  I want to ensure I get the maximum tax advantage if I choose to sell some long or short term losers.  Any further thoughts will be appreciated.  Thanks again to all.

[tagteam]

---

@overtaxed13 wrote:

.....I want to ensure I get the maximum tax advantage.....

---

Are you using TurboTax (online or desktop)? 

The online versions should be released in plenty of time to conduct what-if analyses while you could do that currently with a 2022 desktop version.

You can also test various scenarios with TaxCaster.

See https://turbotax.intuit.com/tax-tools/calculators/taxcaster

[fanfare]

You can sell losers on or before 12/28/2022 to offset gains. Stocks settle in two business days.

After 31 days, but not before, you can buy back any or all of those stock if you still think they are a good investment.

That's all there is to it.

@overtaxed13 

[overtaxed13]

Thank you.  I am using TurboTax Online.   I did not know that I could do the "what if" calculations ahead of time.  Another great tip.

[overtaxed13]

Thank you for the "wash sale" reminder and the details.  Great information.

[overtaxed13]

Thank you Critter.  Very straight forward.

[overtaxed13]

Thank you to all who answered.  I think I have what I need.