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Wednesday, December 30, 2020

2020 Tax-Loss Harvesting (Part 2)

In Part 2 of a three-part article, I'm presenting three more sales to harvest tax losses. All three stocks happen to be from the Energy sector, by far the worst-performing sector this year (and for several years running!). 

I'm trimming one of my Energy stocks and closing two additional Energy stocks. I'm hoping to reinvest in at least one of these positions, but it would depend on what happens in January. 

Part 1 explained the ins-and-outs of tax-loss harvesting and I reported on a recent sell to offset some 2020 capital gains, closing my Gilead Sciences, Inc (GILD) position and recording a loss of about $2,725. I'm hoping to reinstate the position before GILD goes ex-dividend again in March 2021.

Introduction


Tax-loss harvesting is a strategy of selling losing positions to offset capital gains, so reducing your tax obligation.

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 within 30 days of the sell transaction. This is called the wash-sale rule and it establishes a black-out period for a replacement trade. 

When selling a dividend-paying stock to harvest tax losses, I may want to reestablish that position in time to receive the next dividend payment. For that reason, I carefully compare the next ex-dividend date and the end-date of the black-out period. If the next ex-dividend date is later, I have a window of time to buy back shares and so to qualify for the next dividend.

Chevron Corporation (CVX)


I owned 100 shares of CVS in two accounts, 56 shares in a taxable account, and 44 shares in a tax-deferred account. Only losses recorded in taxable accounts are eligible for tax-loss harvesting, so I sold the 56 shares in my taxable account on 30 December 2020: 

CVX Trade Summary

2019-08-02Bought 56 shares of CVX at $118.89 per share: $6,657.84
2019-09-10  Dividends on 56 shares at $1.19 per share:  $66.64
2019-12-10  Dividends on 56 shares at $1.19 per share:  $66.64
2020-03-10  Dividends on 56 shares at $1.29 per share:  $72.24
 2020-06-10  Dividends on 56 shares at $1.29 per share:  $72.24
2020-09-10  Dividends on 56 shares at $1.29 per share:  $72.24
2020-12-10  Dividends on 56 shares at $1.29 per share:  $72.24
2020-12-30Sold 56 shares of CVX at $85.54 per share: $4,790.24

                                                 
              

Capital Loss: $1,867.60

Dividends Received:$422.24

Commissions/Fees/Taxes:
$
2.11

Net Loss:
$
1,447.25                 

Overall I made a net loss of 28.1% on my original investment — a loss of about 19.9% annualized. 

Selling 56 shares of CVX reduced DivGro's projected annual dividend income (PADI) by $288.96. 

I retained 44 shares of CVX at an average cost basis of $98.81 per share. The next ex-dividend date of CVX should occur around 14 February 2021, so as long as I replace these shares before then (and at a per-share price below $98.81), I should be able to reduce my average cost basis. 

Here's a trade summary of transactions and dividends related to my remaining 44 shares:


2018-12-21 Bought 24 shares of CVX at $104.40 per share: $ 2,505.60
2019-03-11  Dividends on 24 shares at $1.19 per share:  $ 28.56
2019-06-10  Dividends on 24 shares at $1.19 per share:  $ 28.86
2019-09-10  Dividends on 24 shares at $1.19 per share:  $ 28.86
2019-12-10  Dividends on 24 shares at $1.19 per share:  $ 28.86
2020-03-10  Dividends on 24 shares at $1.29 per share:  $ 30.96
2020-05-28 Bought 20 shares of CVX at $92.11 per share: $ 1,842.20
2020-06-10  Dividends on 24 shares at $1.29 per share:  $ 30.96
2020-09-10  Dividends on 44 shares at $1.29 per share:  $ 56.76
2020-12-10  Dividends on 44 shares at $1.29 per share:  $ 56.76

                                                 
              

Unrealized Loss on 44 shares @ $85.33 per share:  $ 593.28

Dividends Received: $ 289.68
Net Unrealized Loss:
$
303.60

Phillips 66 (PSX)


My opening position in PSX resulted from an options assignment and I added another 100 shares a few weeks late. The average cost basis of my 200 shares was $85.25.

I'm not convinced that I would reopen a position in PSX. I consider CVX to be a superior stock and would probably increase my CVX position instead of reinvesting in PSX. 

PSX Trade Summary

2020-02-14Bought 100 shares of PSX at $110.00 per share:$11,000.00
2020-03-10Bought 100 shares of PSX at $60.50 per share: $6,050.00
2020-06-01  Dividends on 200 shares at 90¢ per share:  $180.00
2020-09-01  Dividends on 200 shares at 90¢ per share:  $180.00
2020-12-01  Dividends on 200 shares at 90¢ per share:  $180.00
2020-12-30Sold 200 shares of PSX at $70.10 per share: $14,020.00

                                                 
              

Capital Loss: $3,030.00

Dividends Received:$540.00

Commissions/Fees/Taxes:
$
2.33

Net Loss:
$
2,492.33

Overall I made a net loss of 14.6% on my original investment — a loss of about 17.2% annualized. 

Selling 200 shares of PSX reduced DivGro's PADI by $720. 

Exxon Mobil Corporation (XOM)


I first opened a position in XOM in October 2010, buying 30 shares at $85.18 per share. Since that opening trade, I added shares on three more occasions. My position of 200 shares had an average cost basis of $73.15. Currently, XOM is trading below $42.00 per share. 

As with PSX, I'm unsure if I'll replace my XOM position. 

XOM Trade Summary

2013-10-10Bought 30 shares of XOM at $85.18 per share: $2,555.40
2013-12-10  Dividends on 30 shares at 63¢ per share:  $18.90
2014-03-10  Dividends on 30 shares at 63¢ per share:  $18.90
2014-06-10  Dividends on 30 shares at 69¢ per share:  $20.70
2014-09-10  Dividends on 30 shares at 69¢ per share:  $20.70
2014-12-10  Dividends on 30 shares at 69¢ per share:  $20.70
2015-03-10  Dividends on 30 shares at 69¢ per share:  $20.70
2015-06-10  Dividends on 30 shares at 73¢ per share:  $20.70
2015-09-10  Dividends on 30 shares at 73¢ per share:  $20.70
2015-09-25Bought 35 shares of XOM at $73.27 per share: $2,564.45
2015-12-10  Dividends on 65 shares at 73¢ per share:  $47.45
2016-03-10  Dividends on 65 shares at 73¢ per share:  $47.45
2016-06-10  Dividends on 65 shares at 75¢ per share:  $48.75
2016-09-09  Dividends on 65 shares at 75¢ per share:  $48.75
2016-12-09  Dividends on 65 shares at 75¢ per share:  $48.75
2017-03-10  Dividends on 65 shares at 75¢ per share:  $48.75
2017-06-09  Dividends on 65 shares at 77¢ per share:  $50.05
2017-09-11  Dividends on 65 shares at 77¢ per share:  $50.05
2017-12-11  Dividends on 65 shares at 77¢ per share:  $50.05
2018-03-09  Dividends on 65 shares at 77¢ per share:  $50.05
2018-06-11  Dividends on 65 shares at 82¢ per share:  $53.30
2018-09-10  Dividends on 65 shares at 82¢ per share:  $53.30
2018-12-06Bought 35 shares of XOM at $77.21 per share: $2,702.30
2018-12-10  Dividends on 65 shares at 82¢ per share:  $53.30
2019-03-11  Dividends on 100 shares at 82¢ per share:  $82.00
2019-06-10  Dividends on 100 shares at 87¢ per share:  $87.00
2019-08-16Bought 100 shares of XOM at $68.08 per share: $6,808.00
2019-09-10  Dividends on 100 shares at 87¢ per share:  $87.00
2019-12-10  Dividends on 200 shares at 87¢ per share:  $174.00
2020-03-10  Dividends on 200 shares at 87¢ per share:  $174.00
2020-06-10  Dividends on 200 shares at 87¢ per share:  $174.00
2020-09-10  Dividends on 200 shares at 87¢ per share:  $174.00
2020-12-10  Dividends on 200 shares at 87¢ per share:  $174.00
2020-12-30Sold 200 shares of XOM at $41.92 per share: $8,384.47

                                                 
              

Capital Loss: $6,245.68

Dividends Received:$1,940.40

Commissions/Fees/Taxes:
$
3.21

Net Loss:
$
4,308.49

Overall I made a net loss of 29.4% on my original investment; a loss of about 9.2% annualized.

Selling 200 shares of XOM reduced DivGro's PADI by $696.00. 

Conclusion


With these trades, I'm harvesting tax losses to reduce my tax liability for 2020. 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 CVX on or after 31 January 2021 but before CVX's next ex-dividend date around 14 February 2021.  

I probably won't reinvest in PSX or XOM, but I'll see how it goes in early February. Right now, CVX seems to be the stronger Energy sector stock of the three. 

In Part 3, I'll cover three more sells I executed for tax-loss harvesting purposes and I'll provide a summary of my 2020 tax-loss harvesting trades. 

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