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Thursday, December 20, 2018

Recent Sells to Harvest Tax Losses (Part 1)

 In year's past, I've sold stocks in late November or into December to offset capital gains, so limiting my tax liability. The strategy is not without problems, but I like having an excuse to clean house.

So far in 2018, I've earned about $15,000 in capital gains from sold stocks and an additional $6,000 from closed options trades. To lighten my 2018 tax burden, I decided to realize some offsetting losses by trimming and even closing several losing positions.

Part 1 of this article presents a recent sell in which I'm trimming a losing position. I hope to buy back shares next year before the ex-dividend date and to establish a lower cost basis. I'll need to wait 31 days to avoid breaking the so-called wash-sale rule.

Part 2 and Part 3 will cover additional sells. Most of these are similar in that I'm hoping to reestablish my positions next year. But I'm also closing one position altogether.

Tax-Loss Harvesting


Tax-loss harvesting is a strategy of selling losing stock positions to offset capital gains taxes. The IRS discourages tax-loss harvesting by requiring that investors wait 31 days before repurchasing a stock sold at a loss. You also don't qualify for a capital loss if you sell a stock at a loss within 30 days of buying it.

When selling dividend-paying stocks to harvest tax losses, you need to consider the ex-dividend dates of those stocks. Giving up a dividend payment may not be worth the potential tax benefit.

One problem with selling dividend-paying stocks with the hope of buying them back after 31 days, is that you may end up paying more for the shares than you sold them for. Or, as happened with me last year when I closed my TGT position, the stock surged higher so fast that I could not get back in at a reasonable valuation when I wanted to.

My Ford Position


I first invested in Ford (F) in 2014, but not as part of my DivGro portfolio. Rather, I transferred my position to DivGro as part of a consolidation process initiated in 2016. Over time, I added to my position, arguing that F is a great stock for options trading.

Unfortunately, the stock has performed poorly since my initial investment. With an average cost basis of $12.08, my position is down about 32%. F's regular and special dividends (and my options trades) have somewhat made up for the losses, but I'm still in the red overall. 

So, with these trades, I'm taking the opportunity to do a reset.

F Trade Summary


2016-01-04Transferred 170 shares of F at $15.14 per share:$2,573.47
2016-01-04 Transferred past dividends on 170 shares: $102.00
2016-01-26Bought 280 shares of F at $12.24 per share:$3,425.80
2016-01-26Bought 150 shares of F at $11.77 per share:$1,765.98
2016-03-01 Dividend on 450 shares at 15¢ per share: $67.50
2016-03-01Special dividend on 450 shares at 25¢ per share: $112.50
2016-06-01 Dividend on 600 shares at 15¢ per share: $90.00
2016-09-01 Dividend on 600 shares at 15¢ per share: $90.00
2016-12-01 Dividend on 600 shares at 15¢ per share: $90.00
2016-12-27Bought 400 shares of F at $12.44 per share:$4,976.00
2017-03-01 Dividend on 1,000 shares at 15¢ per share: $150.00
2017-03-01Special dividend on 1,000 shares at 5¢ per share: $50.00
2017-04-21Bought 900 shares of F at $11.38 per share:$10,241.91
2017-06-01 Dividend on 1,000 shares at 15¢ per share: $150.00
2017-09-01 Dividend on 1,900 shares at 15¢ per share: $285.00
2016-12-01 Dividend on 1,900 shares at 15¢ per share: $285.00
 2018-03-01 Dividend on 1,900 shares at 15¢ per share: $285.00
2018-03-01Special dividend on 1,900 shares at 13¢ per share: $247.00
2018-06-01 Dividend on 1,900 shares at 15¢ per share: $285.00
2018-09-04 Dividend on 1,900 shares at 15¢ per share: $285.00
2018-12-03 Dividend on 1,900 shares at 15¢ per share: $285.00
2018-12-19Sold 1,000 shares of F at $8.58 per share:$8,575.00
2018-12-19Sold 900 shares of F at $8.58 per share:$7,722.00

                                                 
              

Capital Loss: $6,686.16

Dividends Received:$2,859.00

Commissions/Fees/Taxes:
$
-20.54

Net Loss:
$
3,847.70

I made a net loss of 16.7% on the original amount invested, which is a loss of 7.1% annualized.

Since I mentioned options, perhaps it is important to consider my options income related to Ford. Doing so should provide a better picture of my investment in F.

IDDATE:NO×TICKER OPTIONINCOME( EXPENSES )ROLLEDTOTAL
#2502018-10-24:-10×F 15 Mar 2019 $10.00 C $       190.00 ( $        -10.32 )$ 2,715.27 
#2462018-10-19:-10×F 15 Mar 2019 $10.00 C $       160.00 ( $        -12.77 )$ 2,535.59 
#2262018-08-28:-10×F 18 Jan 2019 $11.00 C $       216.00 ( $        -81.06 )→ #250$ 2,388.36 
#2242018-08-10:-10×F 18 Jan 2019 $11.00 C $       210.00 ( $        -65.61 )→ #246$ 2,253.42 
#2062018-06-14:-20×F 18 Jan 2019 $12.00 C $    1,383.00 ( $      -306.09 )$ 2,109.03 
#1332018-01-10:-20×F 17 Jan 2020 $12.00 C $    3,720.00 ( $   -2,558.96 )→ #206$ 1,032.12 
#1062017-08-30:-20×F 16 Mar 2018 $12.00 C $       480.00 ( $   -2,221.51 )→ #133$   -128.92 
#0882017-06-21:-20×F 15 Sep 2017 $12.00 C $       220.00 ( $        -62.44 )→ #106$ 1,612.59 
#0732017-04-21:-20×F 16 Jun 2017 $12.00 C $       320.00 ( $          -9.11 )$ 1,455.03 
#0562017-02-24:-10×F 16 Jun 2017 $13.00 C $       350.00 ( $        -47.99 )$ 1,144.14 
#0452016-12-27:-4×F 17 Mar 2017 $13.00 C $       120.00 ( $        -36.17 )→ #056$    842.13 
#0242016-11-25:-6×F 17 Mar 2017 $13.00 C $       150.00 ( $        -50.77 )→ #056$    758.30 
#0172016-09-26:-6×F 20 Jan 2017 $11.00 P $       198.00 ( $        -11.21 )$    659.07 
#0062016-08-29:-6×F 18 Nov 2016 $13.00 C $       168.00 ( $        -11.21 )$    472.28 
#0012016-06-01:-6×F 19 Aug 2016 $13.00 C $       330.00 ( $        -14.51 )$    315.49 

key:  expired  •  closed  •  rolled  •  assigned  •  open 

In order to sell my F shares, I had to buy back the options, which secured an additional $28.29 in options income. In total, I've earned $2,743.56 in options income related to my F position.

Overall, I lost $1,104.14 on my F position, which equates to 11.3% of my original investment.

That's a rather poor overall performance.


However, thinking about this differently, my investment of about $23,000 generated total income of about $5,500 in about 4 years. That's about $1,375 per year, or an effective yield of about 6%. (The yield is actually much higher from an internal rate of return perspective, because I didn't invest $23,000 from the start).


Remaining Shares


I retained 100 shares of F at a cost basis of $11.38 per share. I should be able to reduce my average cost basis significantly when I reestablish my position in 2019. F's next ex-dividend date should be at the end of January, so I'll have a window of about a week to buy shares. 

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


2017-04-21Bought 100 shares of F at $11.38 per share:$1,137.99
2017-09-01 Dividend on 100 shares at 15¢ per share: $15.00
2016-12-01 Dividend on 100 shares at 15¢ per share: $15.00
 2018-03-01 Dividend on 100 shares at 15¢ per share: $15.00
2018-03-01Special dividend on 100 shares at 13¢ per share: $13.00
2018-06-01 Dividend on 100 shares at 15¢ per share: $15.00
2018-09-04 Dividend on 100 shares at 15¢ per share: $15.00
2018-12-03 Dividend on 100 shares at 15¢ per share: $15.00

                                                 
              

Unrealized Loss on 100 shares @ $8.32 per share: $305.99

Dividends Received:$103.00

Commissions/Fees/Taxes:
$
-0.40

Net Unrealized Loss:
$
203.39

Conclusion


I'm harvesting tax losses to reduce my tax liability for 2018.

With about $21,000 in capital gains in 2018, I'm taking some large losses by trimming or closing losing positions. Doing so is unpleasant, but I'll be saving some money at tax time and it "cleans house", so to speak.

Because F is a good stock for options trading, I'm planning to reinvest before F's next ex-dividend date, most likely through a covered-call trade.

In Part 2 and Part 3 I'll cover several additional sells I executed for tax-loss harvesting.

What do you thing of my strategy of tax-loss harvesting? Do you execute such trades? Please comment below and thanks for reading!

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