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> there will be other stocks in a losing position that can wash the washer. That is equivalent to “your stock portfolio will never grow”. > This only makes se

> there will be other stocks in a losing position that can wash the washer. That is equivalent to “your stock portfolio will never grow”. > This only makes sense to me if you have a very large, very diversified portfolio. You do not need to own much of the stocks to observe a fall relative to the purchase price in a stock you want to keep. The original “wash sale” prohibition just complicates tax planning - for everyone. Since it’s mathematically absurd, it’s prone to loopholes. But you need to spend time to find the loopholes, so wealthy people are (and will) suffer less. “Wash sale” prohibition harms ordinary stock owners, like me, much more than it harms Steve Balmer.

anonymouskimmer 4y ago
> That is equivalent to “your stock portfolio will never grow”. Realized gains are the only gains that are taxed. You aren't paying capital gains taxes on stocks when you aren't cashing them out. So if a person has $100 million in stocks, some of which are up, and some of which are down. Decides to take out $1 million for a birthday party. And then wash trades a million dollar "paper loss" in their portfolio to cover for the $1 million they cashed out. They'll still have practically the same portfolio, some of which has gained, and some of which has lost, minus the shares they sold to pay for the birthday party. If they invested well, it's possible that their overall portfolio has indeed gained. But thanks to the wash trade they don't have to pay any taxes on the $1 million in gains that they just cashed out. > “Wash sale” prohibition harms ordinary stock owners, like me, much more than it harms Steve Balmer. If you own it in a 401(k) or equivalent you can't claim capital gains losses as a deduction regardless (not until you start taking it out following retirement).
- MikePlacid 4y ago
  I own both 401k, which is mostly in mutual funds (and which are hurt every time you try to hurt Steve Balmers of this world) and also I manage some after-tax portfolio on my own (the experience I warmly recommend to anyone who is trying to understand the effects of proposed tax changes on ordinary investors). > And then wash trades a million dollar "paper loss" in their portfolio to cover for the $1 million they cashed out. This scenario that bothers you is pretty much unrealistic. It’s mathematically impossible if your portfolio grows to offset each cash out with a paper loss. Especially with securities you want to hold. Usually you just sell, register an offsetting loss and forget about the losing stock. And in your calculations you forget the price I paid into the positions. So a year ago I had $200 and put them into stocks A and B, $100 each. Today I’ve sold A for $150, B for $50, got back $200 with zero profit per year. Zero profit - zero taxes, fair? Now I’ve decided that $200 is a bit more than I need and decided to put $50 back in the market. What to buy? Oh, B looks good at $50, let’s put $50 back there. Suddenly, the tax collector says “this purchase (spending money on the stock) turns your $0 profit into $50 profit, taxes please”. How comes? Note that my purchase of B back is not free. I will owe taxes if I sell it for more than $50 (previously - only if I sell it for more than $100). Also, for a year any profit on B will be taxed as an ordinary income, which can be much more than 18% on a long term sale. TLDR. “Wash sale” rule creates more harm than good for an individual investor, and any harm it inflicts on Steve Balmers of the world is inflicted on 401k’s of the working people.
  - anonymouskimmer 4y ago
    How does discouraging wash trades hurt mutual funds? Selling a losing position seems like it would put downward pressure on that particular stock price. Turning around and buying an equivalent position seems like it would put upward pressure on that particular stock price. The only benefit to mutual funds seems to be that if you tax any money the Ballmer's of the world cash out, then you reduce the amount they can put in. Putting in more money would help the current mutual fund price, sure, but it would also make it more expensive compared to the underlying assets for future purchases of that fund. > It’s mathematically impossible if your portfolio grows to offset each cash out with a paper loss Unless you have a very, very large and distributed portfolio compared to the amount of cash you are taking out any given year. Such as for a billionaire who wants to bequeath their billions to a tax-free charitable trust after they die. > And in your calculations you forget the price I paid into the positions. I was making the math easy for rhetorical purposes. > Suddenly, the tax collector says “this purchase (spending money on the stock) turns your $0 profit into $50 profit, taxes please”. How comes? Because you haven't "realized" the loss in B. Instead you've made a market-manipulating double trade. If I make a loss tomorrow I still have to pay my income taxes. Why should it be different for stock market purchases?

anonymouskimmer 4y ago

> That is equivalent to “your stock portfolio will never grow”. Realized gains are the only gains that are taxed. You aren't paying capital gains taxes on stocks when you aren't cashing them out. So if a person has $100 million in stocks, some of which are up, and some of which are down. Decides to take out $1 million for a birthday party. And then wash trades a million dollar "paper loss" in their portfolio to cover for the $1 million they cashed out. They'll still have practically the same portfolio, some of which has gained, and some of which has lost, minus the shares they sold to pay for the birthday party. If they invested well, it's possible that their overall portfolio has indeed gained. But thanks to the wash trade they don't have to pay any taxes on the $1 million in gains that they just cashed out. > “Wash sale” prohibition harms ordinary stock owners, like me, much more than it harms Steve Balmer. If you own it in a 401(k) or equivalent you can't claim capital gains losses as a deduction regardless (not until you start taking it out following retirement).

MikePlacid 4y ago
I own both 401k, which is mostly in mutual funds (and which are hurt every time you try to hurt Steve Balmers of this world) and also I manage some after-tax portfolio on my own (the experience I warmly recommend to anyone who is trying to understand the effects of proposed tax changes on ordinary investors). > And then wash trades a million dollar "paper loss" in their portfolio to cover for the $1 million they cashed out. This scenario that bothers you is pretty much unrealistic. It’s mathematically impossible if your portfolio grows to offset each cash out with a paper loss. Especially with securities you want to hold. Usually you just sell, register an offsetting loss and forget about the losing stock. And in your calculations you forget the price I paid into the positions. So a year ago I had $200 and put them into stocks A and B, $100 each. Today I’ve sold A for $150, B for $50, got back $200 with zero profit per year. Zero profit - zero taxes, fair? Now I’ve decided that $200 is a bit more than I need and decided to put $50 back in the market. What to buy? Oh, B looks good at $50, let’s put $50 back there. Suddenly, the tax collector says “this purchase (spending money on the stock) turns your $0 profit into $50 profit, taxes please”. How comes? Note that my purchase of B back is not free. I will owe taxes if I sell it for more than $50 (previously - only if I sell it for more than $100). Also, for a year any profit on B will be taxed as an ordinary income, which can be much more than 18% on a long term sale. TLDR. “Wash sale” rule creates more harm than good for an individual investor, and any harm it inflicts on Steve Balmers of the world is inflicted on 401k’s of the working people.
- anonymouskimmer 4y ago
  How does discouraging wash trades hurt mutual funds? Selling a losing position seems like it would put downward pressure on that particular stock price. Turning around and buying an equivalent position seems like it would put upward pressure on that particular stock price. The only benefit to mutual funds seems to be that if you tax any money the Ballmer's of the world cash out, then you reduce the amount they can put in. Putting in more money would help the current mutual fund price, sure, but it would also make it more expensive compared to the underlying assets for future purchases of that fund. > It’s mathematically impossible if your portfolio grows to offset each cash out with a paper loss Unless you have a very, very large and distributed portfolio compared to the amount of cash you are taking out any given year. Such as for a billionaire who wants to bequeath their billions to a tax-free charitable trust after they die. > And in your calculations you forget the price I paid into the positions. I was making the math easy for rhetorical purposes. > Suddenly, the tax collector says “this purchase (spending money on the stock) turns your $0 profit into $50 profit, taxes please”. How comes? Because you haven't "realized" the loss in B. Instead you've made a market-manipulating double trade. If I make a loss tomorrow I still have to pay my income taxes. Why should it be different for stock market purchases?