Study Notes:
The information provided here is not intended to serve as tax advice and should not be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local, or other tax statutes or regulations. It is also important to acknowledge that this information cannot be relied upon to resolve any tax issues.
Financial advisors can use IBKR’s Tax Loss Harvest Tool to help clients realize the tax benefits of harvesting capital losses. Advisors can preview the potential losses on stocks and etfs and pre-allocate shares across multiple accounts to fully or partially close out positions and harvest the capital losses. Tax loss harvesting can be a useful part of an overall financial plan and help lower your clients’ overall tax burden, especially if they are in a higher tax bracket.
Accessing the IBKR’s Tax Loss Harvesting Tool
An advisor can access the IBKR Tax Loss Harvesting Tool on the TWS Mosaic Portfolio Tab. Right-click on any stock position line and scroll down to Tax Loss Harvest. Read the disclaimer and when satisfied they click “Accept” to bring up the IBKR Tax Loss Harvesting Tool.
The IBKR Tax Loss Harvesting Tool is also accessible through the Allocation Order Tool located in the Advanced Window in the Mosaic Order Panel as well as in Classic TWS by selecting a stock and using the Allocation Button.
Filtering the account choices and projected loss amounts in the IBKR’s Tax Loss Harvesting Tool
The IBKR Tax Harvesting Tool has several sections. In the upper left-hand corner next to “Allocation” the advisor can choose whether they want to see all the accounts they manage or the accounts in a group they have created. Underneath the Allocation drop down box the advisor can filter the position choices by the Portfolio Segment, choosing only positions of the underlying in either the Independent area, a Model, or a Custom Index.
Once the advisor has selected the accounts and the positions, they can further filter the projected loss of the tax lots by either dollar amount or percentage.
How does an advisor harvest tax losses?
In the upper right-hand corner, the advisor can select whether they want to harvest short term capital loss, long term capital loss, or both by selecting “Any” from the drop down. For this example, the advisor will choose “short-term”. Next, they choose a reference price for the capital gains or losses calculation. The field will automatically populate with the price of the underlying at the time the Tax Loss Harvesting Tool is brought up. Next the advisor may choose to close a percentage of either the losing position or the entire position. For this example, the advisor will sell five percent of this losing position.
Creating order using the Tax Loss Harvesting Tool
The advisor can either swap the position for another instrument using the “Replace with” feature or close out the position for cash. For this example, the advisor will close out for cash but later in the video we will go over the swap feature as well.
When the advisor is ready to sell, they click the blue Apply button. The table below will populate with the quantity of the orders among other important information. There are 11 data columns in the table:
- Account
- Position
- Market Value
- The percent the position is of Net Liquidation Value
- Quantity of the position
- The projected cash quantity of the order which is subject to change subject to prices
- The position after the order is filled
- The position at a loss
- If there is a Wash sale warning which may apply to either the entire order or a portion of the shares. To learn more hover the mouse over the column for a definition.
- The projected loss
Prior to submitting the order, the advisor can create a group of the accounts in the trade to use for additional trades by clicking on the “Save as…” button.
The advisor can export the table to a .CSV file by clicking on Export or copy the table to a clipboard to paste in another area by clicking the “Copy” button.
The advisor can close the table by clicking “Cancel”. When the advisor is ready to create the orders, they click the red “Create TLH Orders” and the order will populate in the Orders Tab of the Activity panel.
Once the order is in the Activity panel the advisor can adjust the order type, time in force, and price. When ready they click “Transmit” to send the order.
How to swap out the losing position for another stock
As mentioned earlier in the video an advisor can either close the position or swap it for another stock. Going back to the previous example, instead of selling five percent of the losing position for cash the advisor will swap it. To swap the stock the advisor clicks the white box next to “Replace with” and then can either click the “Find Replacement” box to bring up a scanner prepopulated with similar companies, or the advisor can type a symbol in the white box. When ready they click the “Create TLH Orders” in the lower right-hand corner and the orders will populate in the Orders tab in the Activity panel. The advisor can adjust the order and when ready click transmit on either line to send the orders.
How to create reports to verify tax allocation
The Advisor Portal allows you to create custom statements to verify the lot allocation. Once the custom report has been created and saved it can be run on the next business day after trades are made to confirm the lot allocation. To create a custom activity statement log in your Advisor Portal, click the Menu icon in the upper left-hand corner and expand the Reporting area by clicking on the plus sign. Next the Advisor clicks “Statements” and clicks the plus sign next to “Custom Statements” and names the report. Let’s call this one Tax Lots. Select Activity for Statement Type, and in the sections area, click Trades. In the Section Configurations area next to Profit and Loss, select MTM and Realized P/L in the drop-down box.
Ensure that the toggle next to “Hide Details for Positions, Trades, and Client Fees” section is set to NO. Next, set the delivery configuration including the period and when ready click Continue, and the advisor will be able to review their settings. Once reviewed click the Blue Create button in the bottom right-hand corner. A message will confirm the Custom Statement has been Saved. Click ok. Now the advisor can run the report anytime for any or all their accounts.
The output will show the list of trades. The advisor can click the plus sign next to a trade to expand and they will see the Closed Lot details. Losses will be shown in red, and gains will be shown in green. On the far-right column under Code it will show either ST for Short-Term or LT for Long-Term.
IBKR’s Tax Loss Harvesting Tool is an extremely useful tool for Advisors who want to utilize tax harvesting for their clients. With this tool the Advisor can easily preview stock capital losses and pre-allocate a trade to multiple clients at once.
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Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers LLC, its affiliates, or its employees.
Disclosure: Tax-Related Items (Circular 230 Notice)
The information in this material is provided for informational purposes only and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.
Disclosure: Order Types / TWS
The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.
