villainx Posted June 30, 2017 Share Posted June 30, 2017 I'm not at a level to even consider this but is it viable to even consider reaping dividend and then the short term loss that theoretically happens when dividend occurs? Let's say there is 7 dollar special dividend, you buy stock at 100, when dividend is paid, pocket 7 dollars dividend, also get to claim 7 dollar drop in stock price? That's assuming there is short term gain to offset. It's too much work for little (perhaps non-existent) benefit? Link to comment Share on other sites More sharing options...
Jurgis Posted June 30, 2017 Share Posted June 30, 2017 I guess it could work, but 1. You have to find large divvies that are qualified and not return of capital. 2. Divvies have to be large and/or on very stable stocks so that you don't lose more on random walk of the stock in the couple days you hold it than you gain in tax benefits (which is just your short term tax rate minus qualified divvie tax rate). Assuming X% divvie payout, you are gaining X% * 1/4 (convert payout to quarterly) * (0.39 (best case) - 0.15) = X% * 0.06. If payout is 1%, your gain is just 0.06%. If payout is 10% (very unlikely to be qualified divvie IMO), your gain is still only 0.6%. You could be losing more on random walk and commissions/bid-ask-spread/etc. 3. Yeah, you'd need to have short term gains to offset. There might be some people who do it, but probably not worth it for most of the people. Link to comment Share on other sites More sharing options...
sleepydragon Posted June 30, 2017 Share Posted June 30, 2017 I think u have to hold a stock for 6 month or so for the dividend to be qualified for dividend tax rate. Not 100% sure on this though. Link to comment Share on other sites More sharing options...
randomep Posted June 30, 2017 Share Posted June 30, 2017 What country's tax code allows you to use capital losses to offset dividends? In the US, the only way to do that is to use capital losses to reduce income by up to $3000, and that could come from dividends...... Link to comment Share on other sites More sharing options...
villainx Posted July 1, 2017 Author Share Posted July 1, 2017 What country's tax code allows you to use capital losses to offset dividends? It was to offset other short term cap gains, or based on my understanding of US taxes. I think u have to hold a stock for 6 month or so for the dividend to be qualified for dividend tax rate. Not 100% sure on this though. I guess that's the (another) rub? Sorry for wasting folks e-time, it was just something that popped into my thought, and I needed to hear others speculate on. Link to comment Share on other sites More sharing options...
randomep Posted July 1, 2017 Share Posted July 1, 2017 What country's tax code allows you to use capital losses to offset dividends It was to offset other short term cap gains, or based on my understanding of US taxes. Well, that is not the case...... like I said you can only offset up to $3000 of capital losses with income/dividends. If I am wrong then I have been doing my taxes wrong all my life. Link to comment Share on other sites More sharing options...
Jurgis Posted July 1, 2017 Share Posted July 1, 2017 What country's tax code allows you to use capital losses to offset dividends It was to offset other short term cap gains, or based on my understanding of US taxes. Well, that is not the case...... like I said you can only offset up to $3000 of capital losses with income/dividends. If I am wrong then I have been doing my taxes wrong all my life. You misunderstand villainx's idea. The idea is as follows: You have $2M short term gains from something - great trading, buying FB 6 months ago and selling now, whatever. You buy crapload of divvie stock (let's say BAC), get $2M of divvies and pay 15% tax on that divvie. Divvie is not used to offset anything. You also get $2M of short term losses because you sell the stock at a loss ex-dividend (you bought stock for $24, divvie was $.08 and stock dropped exactly $.08, so you sold it for $23.92). These $2M of short term losses cover your $2M of short term gains and you don't have to pay taxes on the gains you had. You pay taxes on divvie though. Yes, this is how US taxes work and villainx's idea could work ... if not for the caveats discussed upthread. Edit: and yes, apparently you need to hold stock for 60 days for divvie to be qualified: http://www.dividendstocksonline.com/2011/11/dividend-taxes-qualified-vs-non-qualified-dividends/ So... good idea but no go. 8) Link to comment Share on other sites More sharing options...
hillfronter83 Posted July 1, 2017 Share Posted July 1, 2017 What country's tax code allows you to use capital losses to offset dividends? It was to offset other short term cap gains, or based on my understanding of US taxes. I think u have to hold a stock for 6 month or so for the dividend to be qualified for dividend tax rate. Not 100% sure on this though. I guess that's the (another) rub? Sorry for wasting folks e-time, it was just something that popped into my thought, and I needed to hear others speculate on. This strategy works. You only need to find certain stocks that you can hold for 2 months and pays big dividends. I once had a class in business school and the professor who taught it built his whole career based on tax arbitrage. Link to comment Share on other sites More sharing options...
randomep Posted July 1, 2017 Share Posted July 1, 2017 You misunderstand villainx's idea. The idea is as follows: You have $2M short term gains from something - great trading, buying FB 6 months ago and selling now, whatever. You buy crapload of divvie stock (let's say BAC), get $2M of divvies and pay 15% tax on that divvie. Divvie is not used to offset anything. You also get $2M of short term losses because you sell the stock at a loss ex-dividend (you bought stock for $24, divvie was $.08 and stock dropped exactly $.08, so you sold it for $23.92). These $2M of short term losses cover your $2M of short term gains and you don't have to pay taxes on the gains you had. You pay taxes on divvie though. Yes, this is how US taxes work and villainx's idea could work ... if not for the caveats discussed upthread. Edit: and yes, apparently you need to hold stock for 60 days for divvie to be qualified: http://www.dividendstocksonline.com/2011/11/dividend-taxes-qualified-vs-non-qualified-dividends/ So... good idea but no go. 8) Okee dokee, understood...... Link to comment Share on other sites More sharing options...
villainx Posted July 5, 2017 Author Share Posted July 5, 2017 Thanks everyone for the thoughtful responses and questions. i can imagine bigger players play around with this on the fringes for some tax efficiencies. This might be a separate thread, but dividends - and whether to reinvest (as I historically have) or just get paid (as I have recently switched some stuff to) have been on my mind lately. And this was an extension of those thoughts. Nice to know I'm on my way to being a tax arbitrage professor, just have to come up with a couple of more tricks to round out the course! Link to comment Share on other sites More sharing options...
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