Welcome to Financial Advisor IQ

House GOP Members Slam Rule That Impacts Tax-Loss Harvesting

December 11, 2017

Dozens of House Republicans are calling for the removal from the Senate tax overhaul bill of the first-in first-out requirement on the sale of securities, WealthManagement.com writes. Keeping the FIFO provision, as it’s known, would kill the benefits of automated advice services when it comes to tax loss harvesting, they argue, according to the web publication.

Under the FIFO provision in the current Senate proposal, investors would be required to sell the shares they’ve held the longest first, rather than be allowed to select the ones they want to dispose of to reduce their capital gains tax obligations, according to the letter sent last week to Senate majority leader Mitch McConnell, Senate Finance Committee chair Orrin Hatch, House Speaker Paul Ryan and chairman of the House Ways and Means Committee, Kevin Brady.

Enacting the FIFO provision is expected to net $2.4 billion in taxes over the next 10 years, according to WealthManagement.com. But a mandatory FIFO could also deter investors from using robo-advice platforms, affecting “millions” of retail investors, according to the letter cited by the web publication.

The proposal would also raise taxes on ordinary retail investors, hurt middle-class retirees, raise taxes on employee plan participants, complicate the process of selling securities, lead to inefficient portfolio management and complicate charitable giving, according to the letter.

About 40 Republicans, including several members of the House Financial Services Committee, have signed the letter calling for the elimination of the FIFO provision, the web publication writes.

Joe Ziemer, vice president of policy and communications at robo-advice pioneer Betterment, tells WealthManagement.com the platform always selects the “optimal lot” to sell when getting out of securities because it’s “beneficial for the customer.”

The FIFO rule would eliminate that efficiency, he tells the web publication. Ziemer also says the provision would affect many advisors who’ve been doing tax harvesting, WealthManagement.com writes. A recent white paper by Betterment says that from 2000 to 2013, tax loss harvesting would have boosted a typical client’s after-tax gains by 77 basis points, according to the web publication.

By Alex Padalka
  • To read the WealthManagement.com article cited in this story, click here.