Text on screen: PIMCO EDUCATION –TITLE –
Refresher on Tax Loss Harvesting with John Nersesian
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Text on screen: John Nersesian, Head of Advisor Education
John Nersesian: Hi. I'm John Nersesian, head of Advisor Education at PIMCO.
Today we're going to be talking about a specific tactical opportunity around tax loss harvesting.
Graphic Title: Capital gains/losses recognition
Description: This graphic consists of two boxes, describing how capital gains and losses are calculated. One box is titled “Short-term transactions,” while the other is titled “Long-term transactions.” Each box contains a particular equation that results in a net position, over short-term and long-term transaction periods, respectively. The short term transaction box displays the following text beneath the title: Total short-term gains minus total short-term losses = net short-term position. Underneath the long-term transaction box, is text displaying: total long-term gains minus total long-term losses = net long-term position.
Let's start with a quick refresher on this capital gain and loss harvesting methodology, to take advantage of those opportunities when they exist in the marketplace.
Of course, we start first with short-term gains against short-term losses. We net those two together to come up with a net short-term position.
We then move the methodology over to the long-term position, those assets held in excess of 12 months, and we net out gains against losses there as well.
Graphic Title: Capital gains/losses recognition
Description: This graphic consists of two boxes, describing how capital gains and losses are calculated. One box is titled “Short-term transactions,” while the other is titled “Long-term transactions.” Each box contains a particular equation that results in a net position, over short-term and long-term transaction periods, respectively. The short term transaction box displays the following text beneath the title: Total short-term gains minus total short-term losses = net short-term position. Underneath the long-term transaction box, is text displaying: total long-term gains minus total long-term losses = net long-term position. A small table lists the possible outcomes of the equations: Both gains = each taxed at applicable tax rate; Both loss = deduct up to $3000 currently (short-term first), excess carries forward indefinitely; One gain/one loss = combine the two (net ST or LT, CG or CL), net gain taxed according to applicable rate, net loss deductible up to $3000 currently, excess carried forward indefinitely. It’s noted that short term gains are taxed at ordinary income rates plus 3.8% net investment income tax, and long term gains are taxed at capital gains rate plus 3.8% net investment income tax.
Finally, we pull the two together, and we net out our net short-term position against our net long-term position utilizing that net number in a variety of different ways.
If we have a gain at the end of the day, that gain is going to be taxed based on the relative holding period. If, however, that netting methodology produces a loss, our clients of course can use losses, dollar for dollar, against realized gains. Anything above and beyond can be used up to $3,000 a year against ordinary income. Anything above that amount gets carried forward indefinitely.
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