Saturday, December 22, 2018

Recent Sells to Harvest Tax Losses (Part 2)

Today I'm presenting Part 2 of a three-part article on recent sell transactions to harvest tax losses. With one of the sells presented today, I'm trimming two-thirds of a losing position with the view to reestablishing the position next year. Two additional sells are closing trades because I have no desire to hold onto these positions.

Part 1 presented a recent sell of Ford (F) in which I significantly trimmed my losing position. I hope to buy back shares next year before F goes ex-dividend, but I'll need to wait 31 days to avoid breaking the wash-sale rule.  F's next ex-dividend date should be near the end of January, so I'll have a window of about a week to buy back shares.

See Part 3 of this article for the final tax-loss harvesting sells.

Tax-loss harvesting is a strategy of selling losing positions to offset capital gains taxes.

Investors are free to sell positions whenever they want, but IRS rules limit your ability to offset capital losses in certain cases. Essentially, you cannot buy back the same shares (or establish a substantially similar position) within 30 days of the sell transaction. Your also don't qualify for a capital loss if you sell a losing position within 30 days of establishing it.

When selling a dividend-paying stock to harvest tax losses, usually I want to reestablish the position in time to receive the next dividend payment. So I carefully compare the next ex-dividend date with the end-date of the black-out period (implied by the wash-sale rule). If the next ex-dividend date is later, I'll have a window of time to buy back shares and so qualify for the next dividend.

Sometimes, though, I just want to clean house and close a losing position. To qualify for offsetting capital gains taxes, I can't close the losing position within 30 days of establishing it.

Below, I'm presenting three recent sells. The first is of Gilead Sciences (GILD), a position I'm planning to keep in my DivGro portfolio. I'm selling 200 shares and keeping 100 shares.

The other to sells are of stock I no longer want to own. The first is KB Home (KBH), a low-yielding stock acquired through an options assignment. The second is Nvidia (NVDA), another low-yielder that I bought for its growth prospects.

My GILD Position

I first invested in GILD in 2014 in a portfolio of growth-oriented stocks. Then in 2015, I decided to consolidate my different portfolios and adopt the strategy of dividend growth investment exclusively.

In my judgement, GILD belonged in DivGro even though the company only started paying dividends in 2015. Consequently, I transferred my position to DivGro at the end of 2015 and periodically added more shares over time. 

GILD faces several challenges, but I'm hopeful that the new leadership will help to change things around. Before selling 200 shares, my average cost basis of $78.24 meant that my position was down about 20%. 

GILD Trade Summary

2015-12-25Transferred 22 shares of GILD at $116.48 per share:$2,562.52
2015-12-25 Transferred past dividends on 22 shares: $9.46
2015-12-30 Dividends on 22 shares at 43¢ per share: $9.46
2016-03-18Bought 28 shares of GILD at $90.47 per share:$2,533.15
2016-03-30 Dividends on 22 shares at 43¢ per share: $9.46
2016-06-29 Dividends on 50 shares at 47¢ per share: $23.50
2016-07-18Bought 50 shares of GILD at $87.07 per share:$4,353.36
2016-09-29 Dividends on 100 shares at 47¢ per share: $47.00
2016-12-29 Dividends on 100 shares at 47¢ per share: $47.00
2017-03-30Dividends on 100 shares at 52¢ per share: $52.00
2017-04-21Bought 100 shares of GILD at $65.95 per share:$6,595.00
2017-06-29 Dividends on 200 shares at 52¢ per share: $104.00
2017-09-28 Dividends on 200 shares at 52¢ per share: $104.00
2017-12-28 Dividends on 200 shares at 52¢ per share: $104.00
 2018-03-29 Dividends on 200 shares at 57¢ per share: $114.00
2018-06-28 Dividends on 200 shares at 57¢ per share: $114.00
2018-09-27 Dividends on 200 shares at 57¢ per share: $114.00
2018-12-19Sold 200 shares of GILD at $65.74 per share:$13,147.00
2018-12-27 Dividends on 200 shares at 57¢ per share: $114.00


Capital Loss: $2,897.03

Dividends Received:$965.88


Net Loss:

Overall I made a net loss of 12% on my original investment — a loss of about 5.2% annualized. 

I retained 100 shares of GILD at a cost basis of $74.28 per share. I should be able to reduce my average cost basis significantly when I buy back shares in 2019. GILD's next ex-dividend date is not until mid-March 2019, so I have plenty of time after 20 January 2019 to buy shares.

Here's a trade summary of transactions and dividends related to my remaining 100 shares:

2018-09-05Bought 100 shares of F at $74.28 per share:$7,428.00
2018-11-29 Dividends on 100 shares at 57¢ per share: $57.00
2018-12-27 Dividends on 100 shares at 57¢ per share: $57.00


Unrealized Loss on 100 shares @ $62.62 per share: $1,166.00

Dividends Received:$114.00


Net Unrealized Loss:

Closing KBH 

My position in KBH resulted from an options assignment. In October the stock tanked on concerns that building permits were declining, so the $30 put options I'd sold got assigned. The assignment handed me an immediate unrealized loss of about $2,700.

Compensating somewhat is the $1,492.54 in options income I received on the original options trade.

Originally, I thought I would just hang on and sell covered calls to chip away at the unrealized loss. However, offsetting capital gains to limit our taxes takes priority. 

KBH Trade Summary

2018-10-11Bought 300 shares of KBH at $30.00 per share:$9,000.00
2018-11-21 Dividends on 30 shares at 15¢ per share: $7.50
2018-12-19Sold 300 shares of KBH at $20.40 per share:$6,120.00


Capital Loss: $2,880.00

Dividends Received:$7.50


Net Loss:

Accounting for the options income mentioned above, I made a net loss of 15.3% on my original investment.

Closing NVDA   

Buying NVDA (multiple times) seemed to be a good idea, and if I had my finger on the pulse like this author, I would have dumped my shares earlier. Alas, I didn't!

After NVDA made an all-time high of $292.76 in October, the stock fell more nearly 57%!

Looking at this chart, it certainly looks like NVDA could fall even further...

I've learned a lesson here. In future, if I invest in stocks for their growth prospects (rather than for the dividends they offer), I should have a trailing stop-loss in place. For example, a 25% stop-loss would have allowed me to exit my NVDA position at a profit...

NVDA Trade Summary

2017-06-16Bought 10 shares of NVDA at $151.79 per share:$1,517.90
2017-09-18 Dividends on 22 shares at 14¢ per share: $1.40
2017-09-26Bought 10 shares of NVDA at $173.56 per share:$1,735.60
2017-12-15 Dividends on 20 shares at 15¢ per share: $3.00
2018-03-16 Dividends on 20 shares at 15¢ per share: $3.00
2018-05-11Bought 10 shares of NVDA at $259.00 per share:$2,590.00
2018-06-15 Dividends on 30 shares at 15¢ per share: $4.50
2018-09-21 Dividends on 30 shares at 15¢ per share: $4.50
2018-12-20Sold 30 shares of NVDA at $136.94 per share:$4,108.03
2018-12-21 Dividends on 30 shares at 16¢ per share: $4.80


Capital Loss: $1,735.47

Dividends Received:$21.20


Net Loss:

Overall I made a net loss of 29% on my original investment; a loss of about 28.4% annualized.


With these trades, I'm harvesting tax losses to reduce my tax liability for 2018. Taking large losses for the sake of tax-loss harvesting is not a pleasant affair, but, at least, I'll be saving some money at tax time.

I'm hoping to reinstate my position in GILD sometime after 20 January 2019 but before GILD's next ex-dividend date in mid-March 2019.

I won't reinvest in KBH or NVDA, however, as these stocks have tiny yields and, for the time-being, seemingly lower growth prospects.

Are you executing any tax-loss harvesting trades this year? Do you think it is worth the effort? Please comment below and thanks for reading!

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