Tax Loss Harvesting

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throw123112
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Tax Loss Harvesting

Post by throw123112 »

Let's say I have $10,000 of VFIAX in an IRA that I purchased in 2017. There are dividends automatically reinvested and the last time this occurred was on 12/20/2021. Let's say I then bought $100,000 worth of VFIAX in a taxable brokerage account on 12/31/2021 (it settled on 1/3/2022). Can I sell that $100,000 of VFIAX in the taxable brokerage account on 1/20/2022 (31 days after the reinvestment of dividends in the IRA VFIAX) without triggering a wash sale?
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arcticpineapplecorp.
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Re: Tax Loss Harvesting

Post by arcticpineapplecorp. »

yes but to make it easier in the future you could just avoid buying vfiax (S&P500) in taxable since you own it in IRA and instead buy the total stock market fund instead and other tax loss harvesting partners of total stock market index fund besides vfiax (S&P500).
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throw123112
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Re: Tax Loss Harvesting

Post by throw123112 »

Good point. I already own VTSAX in taxable as well. What if I sold VFIAX and bought FXAIX? Since these technically aren’t substantially identical securities per IRS Publication 550 I don’t think it would trigger a wash sale. It seems like it’s a gray area that hasn’t had a ruling, but people have successfully done it historically.
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iceport
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Re: Tax Loss Harvesting

Post by iceport »

throw123112 wrote: Wed Jan 19, 2022 11:57 am Good point. I already own VTSAX in taxable as well. What if I sold VFIAX and bought FXAIX? Since these technically aren’t substantially identical securities per IRS Publication 550 I don’t think it would trigger a wash sale. It seems like it’s a gray area that hasn’t had a ruling, but people have successfully done it historically.
Yes, it's a gray area, but the position that exchanging one S&P 500 index fund for another S&P 500 index fund without violating the wash sale rule is rather extreme. From where I sit as a layperson, not a tax professional, the following guidance seems to be fairly mainstream:
The lack of clear direction from the IRS regarding mutual funds and the wash sale rule has led many investment advisors to develop a working list of transactions that are generally considered to be acceptable under the wash sale rule contained in Section 1091. For example, a tax-loss swap from one S&P 500 Index fund to another S&P 500 Index fund managed by a different fund company (as described above) may raise a red flag at the IRS. However, if the new fund tracks another large capitalization index, such as the Russell 1000, the tax loss should be allowed.

The following is a list of mutual fund transactions that are generally considered to be acceptable under the wash sale rules contained in Section 1091 despite the lack of a concrete definition of "substantially identical security":

1) Sell one index fund and buy another index fund, if the indexes of the two funds are not the same index (e.g., S&P 500 for the Russell 1000).
2) Sell one actively managed fund and buy a fund at another company with different portfolio managers.
3) Sell an index fund and buy an actively managed fund regardless of the fund company.
4) Sell an actively managed fund and buy an index fund regardless of the fund company.
Tax-Loss Harvesting: The Rebalancing Act
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Lee_WSP
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Re: Tax Loss Harvesting

Post by Lee_WSP »

Make sure reinvestment is off and you don't buy any more for thirty one days after.
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Re: Tax Loss Harvesting

Post by rkhusky »

throw123112 wrote: Wed Jan 19, 2022 11:57 am Good point. I already own VTSAX in taxable as well. What if I sold VFIAX and bought FXAIX? Since these technically aren’t substantially identical securities per IRS Publication 550 I don’t think it would trigger a wash sale. It seems like it’s a gray area that hasn’t had a ruling, but people have successfully done it historically.
I am surprised that Pub 550 says anything about specific funds not being substantially identical.

VFIAX and FXAIX are both S&P 500 funds. Most would consider those substantially identical.
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Lee_WSP
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Re: Tax Loss Harvesting

Post by Lee_WSP »

The IRS has other things to do. We are unlikely to get clarification. What will happen is if they decide to crack down, everyone whose done that is going to get audited after the fact.
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throw123112
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Re: Tax Loss Harvesting

Post by throw123112 »

Pub 550 doesn't say anything. Per this Fidelity article, "There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical." (https://www.fidelity.com/learning-cente ... osses-etfs)

It seems like it's a tax loophole that has been out there for quite some time without the IRS wanting to give any definitive guidance. I think I'll just go out for it and see what happens. Most likely, I think it works.
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Re: Tax Loss Harvesting

Post by rkhusky »

throw123112 wrote: Wed Jan 19, 2022 1:30 pm Pub 550 doesn't say anything. Per this Fidelity article, "There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical." (https://www.fidelity.com/learning-cente ... osses-etfs)

It seems like it's a tax loophole that has been out there for quite some time without the IRS wanting to give any definitive guidance. I think I'll just go out for it and see what happens. Most likely, I think it works.
The brokerage will let you do it, because they are not required to flag it. They are not required to flag many transactions that are definitely wash sales. The taxpayer is required to do so, and avers so under the threat of perjury.

I am not sure why people like to skate so close to thin ice, when it is so easy to avoid it, such as using Large Cap Index or waiting 1 more day until the full 31 days has passed.
Last edited by rkhusky on Wed Jan 19, 2022 1:49 pm, edited 1 time in total.
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Lee_WSP
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Re: Tax Loss Harvesting

Post by Lee_WSP »

It's not perjury. It's just a penalty and an audit.
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Re: Tax Loss Harvesting

Post by rkhusky »

Lee_WSP wrote: Wed Jan 19, 2022 1:43 pm It's not perjury. It's just a penalty and an audit.
My 1040 form requires a taxpayer signature under:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.
I take that seriously.
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Lee_WSP
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Re: Tax Loss Harvesting

Post by Lee_WSP »

rkhusky wrote: Wed Jan 19, 2022 1:47 pm
Lee_WSP wrote: Wed Jan 19, 2022 1:43 pm It's not perjury. It's just a penalty and an audit.
My 1040 form requires a taxpayer signature under:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.
I take that seriously.
There's a difference between disagreement or misunderstanding and lying about your income.
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Re: Tax Loss Harvesting

Post by rkhusky »

Lee_WSP wrote: Wed Jan 19, 2022 1:58 pm
rkhusky wrote: Wed Jan 19, 2022 1:47 pm
Lee_WSP wrote: Wed Jan 19, 2022 1:43 pm It's not perjury. It's just a penalty and an audit.
My 1040 form requires a taxpayer signature under:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.
I take that seriously.
There's a difference between disagreement or misunderstanding and lying about your income.
I think in this case it would be a disagreement since OP can easily see that most people believe that two S&P 500 Index funds are substantially identical (See, e.g., https://www.morningstar.com/articles/10 ... -identical).

Further, the OP might want to consider the case of Hanlin v Commissioner (https://law.justia.com/cases/federal/ap ... 9/1478038/), where the taxpayer bought and sold bonds from the City of Philadelphia and the Federal Land Banks of Omaha, Louisville, St. Louis and Wichita. The court ruled that the bonds were substantially identical and declared wash sales.

In order to proceed and be able to truthfully affix a signature on the tax form, the OP should have a clear argument for why two S&P 500 Index funds are not substantially identical.
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Lee_WSP
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Re: Tax Loss Harvesting

Post by Lee_WSP »

I agree that if audited it’s rather unlikely the service will not consider two S&P 500 ETF’s substantially identical. Double negative, so I’ll say it again without the double negative.

The service’s position is likely that merely because two ETF’s are managed by different companies but are otherwise identical are substantially identical. I think they will also consider a mere index difference also not consequential so long as the indexes are substantially similar but for a few stocks.

People have tried this with baskets of stocks. I have not delved into the case law too much, but it’s about a 30% difference or so that is considered safe, IIRC.
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Re: Tax Loss Harvesting

Post by placeholder »

It's been a long standing position in irs docs that funds or securities from different companies are not substantially identical and I see no reason to think that is not still in effect.
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iceport
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Re: Tax Loss Harvesting

Post by iceport »

placeholder wrote: Wed Jan 19, 2022 6:48 pm It's been a long standing position in irs docs that funds or securities from different companies are not substantially identical and I see no reason to think that is not still in effect.
Could you provide a current example?
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Re: Tax Loss Harvesting

Post by placeholder »

iceport wrote: Wed Jan 19, 2022 6:53 pm Could you provide a current example?
I don't understand the request.
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Re: Tax Loss Harvesting

Post by iceport »

placeholder wrote: Wed Jan 19, 2022 6:55 pm
iceport wrote: Wed Jan 19, 2022 6:53 pm Could you provide a current example?
I don't understand the request.
Sure. You wrote:
placeholder wrote: Wed Jan 19, 2022 6:48 pm It's been a long standing position in irs docs that funds or securities from different companies are not substantially identical and I see no reason to think that is not still in effect.
Could you provide a citation from a current IRS doc expressing the position that funds or securities from different companies are not substantially identical?

Thanks.
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Re: Tax Loss Harvesting

Post by placeholder »

iceport wrote: Wed Jan 19, 2022 7:00 pm Could you provide a citation from a current IRS doc expressing the position that funds or securities from different companies are not substantially identical?
Certainly.
Substantially identical.

In determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases. For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.
https://www.irs.gov/publications/p550#e ... k100010607

You can read what our departed friend earl had to say (he's fine just not here):

viewtopic.php?p=4497399#p4497399
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Re: Tax Loss Harvesting

Post by Lee_WSP »

Neither of those are binding on the service.
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iceport
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Re: Tax Loss Harvesting

Post by iceport »

placeholder wrote: Wed Jan 19, 2022 7:10 pm
iceport wrote: Wed Jan 19, 2022 7:00 pm Could you provide a citation from a current IRS doc expressing the position that funds or securities from different companies are not substantially identical?
Certainly.

https://www.irs.gov/publications/p550#e ... k100010607
Substantially identical.

In determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases.

[emphasis added]
Seems far from an open-and-shut case to argue that the above language rules out treating two index funds tracking identical indexes from being found to be substantially identical, just because two different mutual fund companies are selling the (same) bundles of stock.
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Re: Tax Loss Harvesting

Post by Iorek »

I think the Service has lots better things to do than spend its time trying to define “substantially similar” but I would be shocked if you could find a tax lawyer willing to say that they believe two S&P500 index funds are not substantially similar.

Maybe if the test was “identical” you could get away with that but I am hard pressed to think of securities that are a better example of being “substantially similar” without being identical (I guess maybe brokered CDs issued by different banks with the same terms and FDIC insurance, but that is pretty extreme).
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Re: Tax Loss Harvesting

Post by nolesrule »

Iorek wrote: Wed Jan 19, 2022 7:44 pm I think the Service has lots better things to do than spend its time trying to define “substantially similar” but I would be shocked if you could find a tax lawyer willing to say that they believe two S&P500 index funds are not substantially similar.

Maybe if the test was “identical” you could get away with that but I am hard pressed to think of securities that are a better example of being “substantially similar” without being identical (I guess maybe brokered CDs issued by different banks with the same terms and FDIC insurance, but that is pretty extreme).
The term is "substantially identical".

I'm not sure why so many people think it's "substantially similar".
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Re: Tax Loss Harvesting

Post by Iorek »

nolesrule wrote: Wed Jan 19, 2022 7:46 pm
Iorek wrote: Wed Jan 19, 2022 7:44 pm I think the Service has lots better things to do than spend its time trying to define “substantially similar” but I would be shocked if you could find a tax lawyer willing to say that they believe two S&P500 index funds are not substantially similar.

Maybe if the test was “identical” you could get away with that but I am hard pressed to think of securities that are a better example of being “substantially similar” without being identical (I guess maybe brokered CDs issued by different banks with the same terms and FDIC insurance, but that is pretty extreme).
The term is "substantially identical".

I'm not sure why so many people think it's "substantially similar".
Thanks for clarifying (although I think the point still stands)
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Re: Tax Loss Harvesting

Post by placeholder »

iceport wrote: Wed Jan 19, 2022 7:27 pm Seems far from an open-and-shut case to argue that the above language rules out treating two index funds tracking identical indexes from being found to be substantially identical, just because two different mutual fund companies are selling the (same) bundles of stock.
Could you provide a citation from a current IRS doc expressing the position that funds or securities from different companies are substantially identical?

Note that the example given as an exception is a case where one company has ties to another:
For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.
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fetch5482
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Re: Tax Loss Harvesting

Post by fetch5482 »

As it's clear in this post, IRS didn't define pub 550 rules very well.

I personally use the following as my pairs to avoid TLH..All these pairs track a different underlying index, which I feel is a defendable position if IRS audits.

1) S&P 500 (VOO) -> Large cap (VV)
2) Total US (VTI) -> VOO/VV and VXF (80/20 ratio)
3) Small-cap Value (VBR) -> small-cap value (IJS)
4) Total International (VXUS) -> ex-US (VEU) -> VEA/VWO (75/25 ratio)
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Re: Tax Loss Harvesting

Post by TropikThunder »

placeholder wrote: Wed Jan 19, 2022 7:10 pm
Substantially identical.

In determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases. For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.
https://www.irs.gov/publications/p550#e ... k100010607

You can read what our departed friend earl had to say (he's fine just not here):

viewtopic.php?p=4497399#p4497399
Seems to me they mean a corporation as in Apple or Tesla or Exxon, not a mutual fund company. The reference to "predecessor and successor" refers to mergers and acquisitions of a corporation.

The next paragraph of your citation makes pretty clear that they are talking about a single corporate entity, not a mutual fund:
Similarly, bonds or preferred stock of a corporation are not ordinarily considered substantially identical to the common stock of the same corporation. However, where the bonds or preferred stock are convertible into common stock of the same corporation, the relative values, price changes, and other circumstances may make these bonds or preferred stock and the common stock substantially identical.
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Re: Tax Loss Harvesting

Post by iceport »

placeholder wrote: Thu Jan 20, 2022 12:17 am
iceport wrote: Wed Jan 19, 2022 7:27 pm Seems far from an open-and-shut case to argue that the above language rules out treating two index funds tracking identical indexes from being found to be substantially identical, just because two different mutual fund companies are selling the (same) bundles of stock.
Could you provide a citation from a current IRS doc expressing the position that funds or securities from different companies are substantially identical?
No, but I never claimed that to be the case. You claimed "a long standing position in irs docs that funds or securities from different companies are not substantially identical." The text you cited does not definitively state that to be the case.

Instead, it explicitly states that, depending on all the facts and circumstances, stocks or securities of one corporation may be substantially identical to stocks or securities of another corporation.
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Re: Tax Loss Harvesting

Post by rkhusky »

placeholder wrote: Wed Jan 19, 2022 6:48 pm It's been a long standing position in irs docs that funds or securities from different companies are not substantially identical and I see no reason to think that is not still in effect.
I think your use of the word "funds" is problematic. The guidance says "stocks", which is generally true, unless, as mentioned, there is some connection between the two companies.
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Re: Tax Loss Harvesting

Post by rkhusky »

It is interesting to take a look at some of the rulings involving wash sales. A white paper from G2Fintech (Advanced Topics in Wash Sales: Substantially Identical Bonds) lists several involving bonds (unfortunately their web site appears to be defunct*):

Hanlin v. Commissioner, and Rev. Ruls. 1958-211, 1958-210, 1959-44, 1960-195, and 1976-346. The bonds in Hanlin v. Commissioner and RR 58-211 were determined to be substantially identical, while they were determined to be not substantially identical in the other rulings.

From these you will see that there doesn't have to be much to make two bonds not substantially identical, just “several material features considered together”. In one case (RR 60-195), the key difference appeared to be the interest rate difference (3.45% vs. 4.5%), while in another case (RR 60-195) the interest rate was the same and the maturity dates differed by only 3 months, but there were two other features deemed important.

Perhaps an S&P Index fund with an ER of 2% would not be substantially identical to one with an ER of 0.03%?

*Edit: Fortunately, the Wayback Machine (archive.org) has the G2Fintech site archived. Below is the wash sale section:
http://web.archive.org/web/202011120136 ... sales.html
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Re: Tax Loss Harvesting

Post by placeholder »

rkhusky wrote: Thu Jan 20, 2022 7:22 am I think your use of the word "funds" is problematic. The guidance says "stocks", which is generally true, unless, as mentioned, there is some connection between the two companies.
It still says securities.
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Re: Tax Loss Harvesting

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iceport wrote: Thu Jan 20, 2022 2:12 am
No, but I never claimed that to be the case. You claimed "a long standing position in irs docs that funds or securities from different companies are not substantially identical." The text you cited does not definitively state that to be the case.
The longstanding referred to pub 564 which was combined with 550.
Instead, it explicitly states that, depending on all the facts and circumstances, stocks or securities of one corporation may be substantially identical to stocks or securities of another corporation.
Yes but it gives no reason to think index has any relevance and the only examples are not remotely related.
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Re: Tax Loss Harvesting

Post by placeholder »

TropikThunder wrote: Thu Jan 20, 2022 1:36 am
Seems to me they mean a corporation as in Apple or Tesla or Exxon, not a mutual fund company. The reference to "predecessor and successor" refers to mergers and acquisitions of a corporation.
That's an interpretation without much basis using only an example.
The next paragraph of your citation makes pretty clear that they are talking about a single corporate entity, not a mutual fund:
A single example is not meant to be exhaustive and no one has yet to provide any irs backing for their position so if this is less than declarative it's at least in my mind guidance.
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Re: Tax Loss Harvesting

Post by iceport »

placeholder wrote: Thu Jan 20, 2022 2:02 pm
iceport wrote: Thu Jan 20, 2022 2:12 am
No, but I never claimed that to be the case. You claimed "a long standing position in irs docs that funds or securities from different companies are not substantially identical." The text you cited does not definitively state that to be the case.
The longstanding referred to pub 564 which was combined with 550.
Instead, it explicitly states that, depending on all the facts and circumstances, stocks or securities of one corporation may be substantially identical to stocks or securities of another corporation.
Yes but it gives no reason to think index has any relevance and the only examples are not remotely related.
Fine, but "all the facts and circumstances" cast a pretty wide net. The statement still stands on its own, "However, they may be substantially identical in some cases." Examples are just that; they're not called examples if they are intended to be construed as a comprehensive inventory of all possible facts and circumstances.

It should also be noted that much of the language in the IRS publications probably predates the popularity of even mutual funds, never mind index funds and ETFs. In a world when individual stocks were the primary investment vehicle, the general case involving two different companies had a lot more relevance and — in my opinion — accuracy.



It's really too bad there aren't at least half a dozen other index funds available for use that are widely recognized as practically identical but not substantially identical in the legal sense as it pertains to wash sales. If there were, then nobody would have to spend so much time worrying about whether exchanging one index fund for another that follows the very same index violates the wash sale rule. Just picking a better, more tax-risk-free alternative would be so much easier. Too bad that's not an option. :wink:



I almost get the sense that pushing the boundary in this way is an act of personal rebellion against... something, I really don't know what. It's like folks seem to think there's some inalienable right for all citizens to claim a loss while staying invested in the same fund, and this is their way of staking that claim.
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Re: Tax Loss Harvesting

Post by Lee_WSP »

The service is going look at the underlying makeup of each fund to determine substantially identical. There is no current good guidance on what the threshold is. But iirc, there is a ruling stating that thirty percent difference is clearly different.
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throw123112
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Re: Tax Loss Harvesting

Post by throw123112 »

What is your source for this 30% number you keep talking about? Is it actually guidance from the IRS? I don’t believe they have ever given such guidance.
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Re: Tax Loss Harvesting

Post by fetch5482 »

throw123112 wrote: Thu Jan 20, 2022 3:54 pm What is your source for this 30% number you keep talking about? Is it actually guidance from the IRS? I don’t believe they have ever given such guidance.
I have met a few CPAs who have thrown numbers like that without citation. I am not sure where they come from. For example, one CPA I spoke to a while ago said that S&P 500 / Total Stock Market do not make good TLH pair since it has less than 20% non-overlap (i.e. >80% of TSM consists of S&P 500). I don't think there is any guidance that is this specific, so not sure where this notion of percentage non-overlapping assets come from. IRS just uses the word "substantially" with no quantification. To me, a 18% difference is substantial enough, but there is no way to know unless IRS audits someone and denies their claim based on this argument.
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Re: Tax Loss Harvesting

Post by Lee_WSP »

throw123112 wrote: Thu Jan 20, 2022 3:54 pm What is your source for this 30% number you keep talking about? Is it actually guidance from the IRS? I don’t believe they have ever given such guidance.
It's called a basket swap. Some accounting firms advocate for it. I'm unsure of their legal basis, but I can't attack it either.

https://www.kkwc.com/insights/tax-planning-losses/
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Re: Tax Loss Harvesting

Post by rkhusky »

throw123112 wrote: Thu Jan 20, 2022 3:54 pm What is your source for this 30% number you keep talking about? Is it actually guidance from the IRS? I don’t believe they have ever given such guidance.
I saw an article that referenced a ruling on straddles that evoked that number.

https://www.morningstar.com/articles/10 ... -identical
Last edited by rkhusky on Thu Jan 20, 2022 6:51 pm, edited 1 time in total.
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Re: Tax Loss Harvesting

Post by rkhusky »

placeholder wrote: Thu Jan 20, 2022 2:00 pm
rkhusky wrote: Thu Jan 20, 2022 7:22 am I think your use of the word "funds" is problematic. The guidance says "stocks", which is generally true, unless, as mentioned, there is some connection between the two companies.
It still says securities.
Bonds.
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Re: Tax Loss Harvesting

Post by rob »

iceport wrote: Thu Jan 20, 2022 2:23 pmIt's really too bad there aren't at least half a dozen other index funds available for use that are widely recognized as practically identical but not substantially identical in the legal sense as it pertains to wash sales. If there were, then nobody would have to spend so much time worrying about whether exchanging one index fund for another that follows the very same index violates the wash sale rule. Just picking a better, more tax-risk-free alternative would be so much easier. Too bad that's not an option. :wink:
I used to care about this... but the IRS has not bothered to define "substantially identical" for decades now... so I've given up caring... I buy a different ticker and will take my chances - I think it's pathetic the IRS could not be bothered... but if they don't, why should I.
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arcticpineapplecorp.
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Re: Tax Loss Harvesting

Post by arcticpineapplecorp. »

throw123112 wrote: Wed Jan 19, 2022 11:57 am Good point. I already own VTSAX in taxable as well. What if I sold VFIAX and bought FXAIX? Since these technically aren’t substantially identical securities per IRS Publication 550 I don’t think it would trigger a wash sale. It seems like it’s a gray area that hasn’t had a ruling, but people have successfully done it historically.
So now the question is why do you have both vtsax and vfiax in taxable? If you have vtsax that's inclusive of vfiax whereas vfiax leaves out some of what vtsax contains.

You can have different lots of vtsax and sell some lots that have incurred losses while not selling other lots of vtsax you purchased prior to 31 days.
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Re: Tax Loss Harvesting

Post by throw123112 »

rob wrote: Thu Jan 20, 2022 6:54 pm I used to care about this... but the IRS has not bothered to define "substantially identical" for decades now... so I've given up caring... I buy a different ticker and will take my chances - I think it's pathetic the IRS could not be bothered... but if they don't, why should I.
I think this here is the real comment. It doesn't really seem like the IRS has their attention on this and will most likely not have their attention on it any time soon given their past history and behavior. Therefore, it seems that most likely you can be relatively aggressive with the definition of "substantially identical" unless something drastically changes the IRS's focus and attention.
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Frequency of Tax Loss Harvesting

Post by throw123112 »

[Thread merged into here --admin LadyGeek]

How frequently are you guys tax loss harvesting? Let's say you put $200k into the market at the highs near the end of the year. Even a 1% drop is worth around $800 ($200,000 * 1% loss * 40% assumed tax rate = $800 tax credit). It makes me tempted to tax loss harvest quite aggressively almost every single day if the market keeps dropping. I think Vanguard has limits on how often you can trade in and out of their funds, but luckily I hold most of my holdings at Interactive Brokers and they don't have these limits (so I can freely trade in and out of Vanguard / Fidelity funds as I please). They do charge $30 to get in and out of a mutual fund, but I'm happy to pay that if I can save $800 eventually on a 1% swing in the markets. How often are you guys tax loss harvesting? Is there a specific threshold at which you act? Is there a systematic way that you pursue this? Any thoughts are welcome.
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Re: Frequency of Tax Loss Harvesting

Post by retiringwhen »

throw123112 wrote: Thu Jan 20, 2022 7:29 pm How frequently are you guys tax loss harvesting? Let's say you put $200k into the market at the highs near the end of the year. Even a 1% drop is worth around $800 ($200,000 * 1% loss * 40% assumed tax rate = $800 tax credit). It makes me tempted to tax loss harvest quite aggressively almost every single day if the market keeps dropping. I think Vanguard has limits on how often you can trade in and out of their funds, but luckily I hold most of my holdings at Interactive Brokers and they don't have these limits (so I can freely trade in and out of Vanguard / Fidelity funds as I please). They do charge $30 to get in and out of a mutual fund, but I'm happy to pay that if I can save $800 eventually on a 1% swing in the markets. How often are you guys tax loss harvesting? Is there a specific threshold at which you act? Is there a systematic way that you pursue this? Any thoughts are welcome.
We put a good chunk in late 2017, and then saw 12 mos. of significant volatility. I lost track but I believe we completed at least 3 full TLH round trips of the entire new money during the year and one last biggie TLH around christmas 2018 that still is our portfolio. I would do it as often as you can in turbulent times if there are no transaction costs in your account. The only cost is bookkeeping. Of course, pay attention to wash sales as required. No reason to make transactions if they don't actually create a reportable loss.
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Re: Tax Loss Harvesting

Post by LadyGeek »

throw123112 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

This thread is now in the Personal Finance (Not Investing) forum (taxes).

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Tax Loss Harvesting

Post by throw123112 »

LadyGeek wrote: Thu Jan 20, 2022 8:13 pm throw123112 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

This thread is now in the Personal Finance (Not Investing) forum (taxes).

(Thanks to the member who reported the post and provided a link to this thread.)
Great point. Thank you.
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Re: Tax Loss Harvesting

Post by arcticpineapplecorp. »

throw123112 wrote: Thu Jan 20, 2022 7:29 pm
How frequently are you guys tax loss harvesting?
$3000 sounds like a good minimum amount considering that's the max you can use to reduce ordinary income per year.

I say the least because if it's more you have carry over losses.

Also the amount depends on if you want to harvest gains and need losses to offset.

Also understand you're resetting your basis to a new lower amount which means you may pay more taxes in the future when you sell with gains. There are some ways to deal with that of course.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Re: Tax Loss Harvesting

Post by throw123112 »

Could you tax loss more frequently than every 31 days? So let's say you start off with a $200k position in VFIAX --> $190k position after 5 days, you sell this and buy $190k of FXAIX --> $180k position after 5 days, you sell this and buy VTSAX --> this becomes $170k position after 5 days, you sell this and buy FSKAX and so on with other tickers to make sure that you don't violate the wash sale rule of 30 days before or after. It would essentially allow you to get the government to pay around 40% of your losses at the highest tax brackets in a huge down year. Then if you hold these mutual funds for a long time, the present value of the future taxes that you would pay would be relatively minimal and at a lower tax rate given that you would be paying at the long term capital gains rate. In addition, it would also potentially provide a tax shield in the event you actually wanted to liquidate a taxable position with significant capital gains.
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Re: Tax Loss Harvesting

Post by fetch5482 »

There are two styles to Tax Lost Harvesting: The Walmart style and the Costco style.

Walmart style - try to tax lost every little amount you can. Most people do it at 1000 - 3000 dollars to avoid market movements causing them to accidentally sell at profit (especially for index funds that trade after close of market). You will do a few TLH transactions in most years.

Costco style - Do one large TLH when market dips significantly and there are substantial losses to harvest - usually $30-40K plus in my case. You are good for the next several years until the next opportunity arises.

(well, actually there is a third style, the J.C.Penney style where you never harvest ever!)

I am the "Costco style" person. I did a big TLH in March/April 2020 timeframe that will likely last me a few more years. I find this as a good balance between being hands-off and trying to find opportunities all the time. I probably have a few TLH opportunities right now, but they add up to couple thousand dollars - not worth my time right now given I have enough carry over left to claim this year already.
Last edited by fetch5482 on Thu Jan 20, 2022 9:46 pm, edited 2 times in total.
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