Tax Loss Harvest pairs leverage fund vs standard index

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ChinchillaWhiplash
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Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

Anyone know for sure if it would trigger a wash sale or not if you sold VOO at a loss to buy 3x leveraged fund UPRO which both track the S&P 500? Both funds hold the same securities and track the same index but the leveraged fund is obviously different, correct? How about SPLX vs UPRO? Both are 3x ETFs that follow S&P 500 but one uses the ETF IVV as a holding vs the 500 individual stocks. Also the contracts are not with the same institutions. How would the IRS view these? They perform the same but use slightly different means to achieve their results.
Hyperchicken
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by Hyperchicken »

ChinchillaWhiplash wrote: Sat Jan 22, 2022 10:20 pm Anyone know for sure if it would trigger a wash sale or not if you sold VOO at a loss to buy 3x leveraged fund UPRO which both track the S&P 500? Both funds hold the same securities and track the same index but the leveraged fund is obviously different, correct? How about SPLX vs UPRO? Both are 3x ETFs that follow S&P 500 but one uses the ETF IVV as a holding vs the 500 individual stocks. Also the contracts are not with the same institutions. How would the IRS view these? They perform the same but use slightly different means to achieve their results.
Obviously they don't. VOO and UPRO are not substantially identical, not even close.
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ChinchillaWhiplash
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

Hyperchicken wrote: Sat Jan 22, 2022 10:41 pm
ChinchillaWhiplash wrote: Sat Jan 22, 2022 10:20 pm Anyone know for sure if it would trigger a wash sale or not if you sold VOO at a loss to buy 3x leveraged fund UPRO which both track the S&P 500? Both funds hold the same securities and track the same index but the leveraged fund is obviously different, correct? How about SPLX vs UPRO? Both are 3x ETFs that follow S&P 500 but one uses the ETF IVV as a holding vs the 500 individual stocks. Also the contracts are not with the same institutions. How would the IRS view these? They perform the same but use slightly different means to achieve their results.
Obviously they don't. VOO and UPRO are not substantially identical, not even close.
That is my thinking too. Just wanted to get more opinions on all this since the rules are pretty vague.
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

After reading article such as this, I began to wonder if my thinking is correct. https://www.mymoneyblog.com/etf-tax-los ... tical.html
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Re: Tax Loss Harvest pairs leverage fund vs standard index

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Makefile
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by Makefile »

VOO and UPRO are an extremely different investment position and level of risk, and have extremely different investment performance. There's no way they are substantially identical.

In contrast to some of the resources you've posted, there's also this Cottage Savings case (https://tile.loc.gov/storage-services/s ... 499554.pdf) that seems more pro-taxpayer. I am not a lawyer. But it seems the Supreme Court was rebuking the IRS for claiming that if investors/the marketplace consider them interchangeable, they're substantially identical:
There is no support in Phellis, Weiss, or Marr for the Commissioner's "economic substitute" concept of material difference, under which differences would be material only when the parties, the relevant market, and the relevant regulatory body would consider them so. Moreover, the complexity of the Commissioner's approach both ill-serves the goal of administrative convenience underlying the realization requirement and is incompatible with the Code's structure.
Anyway, no point in this turning into yet another "substantially identical" thread. Do what you think is right.
Makefile
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by Makefile »

Here's what I was reading that points to that case above:

http://archives.cpajournal.com/old/12826671.htm

It's from 1992, so it's unfortunate that it can't elaborate on how the IRS' attempt to redefine substantially identical as "economically substitutable" turned out.
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

Thanks for the posts. So makes sense that the leveraged equivalent funds are not identical to their non leveraged counterparts due to their structure being different. Would guess that they are also managed actively compared to the standard index fund. What about the 2 different 3x funds SPLX and UPRO? One holding an ETF of the index and the other individual stocks of the index.
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Re: Tax Loss Harvest pairs leverage fund vs standard index

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Suggest you use the search box to read the plethora of threads on what people consider substantially identical means.
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

Nate79 wrote: Sun Jan 23, 2022 9:13 am Suggest you use the search box to read the plethora of threads on what people consider substantially identical means.
Cool. Search function has been improved I see. If CUSIP is not same, security is not identical. This is the main point I have gleaned from the search. Otherwise there is a ton of debate and little consensus between posters. How does one find the CUSIP of a security? And, yes, I did a search on this and found people asking the same question and NOT finding an answer.
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Re: Tax Loss Harvest pairs leverage fund vs standard index

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ChinchillaWhiplash wrote: Sun Jan 23, 2022 11:18 am
Nate79 wrote: Sun Jan 23, 2022 9:13 am Suggest you use the search box to read the plethora of threads on what people consider substantially identical means.
Cool. Search function has been improved I see. If CUSIP is not same, security is not identical. This is the main point I have gleaned from the search. Otherwise there is a ton of debate and little consensus between posters. How does one find the CUSIP of a security? And, yes, I did a search on this and found people asking the same question and NOT finding an answer.
There is no consensus because there is no specific rules to define what substantially identical means. So I will give my opinion on if 2 funds are substantially identical :
1. Same exact fund - yes
2. Share class of same fund - yes
3. Follows exact same index but from different fund manager/provider - maybe, maybe not but risky
4. Different index - no
5. Different holdings in the fund - no
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by ChinchillaWhiplash »

Nate79 wrote: Sun Jan 23, 2022 11:59 am
ChinchillaWhiplash wrote: Sun Jan 23, 2022 11:18 am
Nate79 wrote: Sun Jan 23, 2022 9:13 am Suggest you use the search box to read the plethora of threads on what people consider substantially identical means.
Cool. Search function has been improved I see. If CUSIP is not same, security is not identical. This is the main point I have gleaned from the search. Otherwise there is a ton of debate and little consensus between posters. How does one find the CUSIP of a security? And, yes, I did a search on this and found people asking the same question and NOT finding an answer.
There is no consensus because there is no specific rules to define what substantially identical means. So I will give my opinion on if 2 funds are substantially identical :
1. Same exact fund - yes
2. Share class of same fund - yes
3. Follows exact same index but from different fund manager/provider - maybe, maybe not but risky
4. Different index - no
5. Different holdings in the fund - no


Thanks for the detailed answer :beer Problem with the leveraged ETFs is that they are not quite the same as a plain vanilla index ETF. Not sure how to look at them in comparison. Seems to be a grey area. For example, how would one compare these 3 funds? VOO which is an index fund that follows the S&P 500 with no leverage. SSO which is S&P w/2x leverage. And finally UPRO S&P w/3x. All 3 of these funds follow the S&P 500 index, but obviously have some differences. Is that difference enough to not be viewed as identical by the IRS? :confused Sounds like that falls into category of answer #3, but maybe less so?
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Re: Tax Loss Harvest pairs leverage fund vs standard index

Post by Nate79 »

ChinchillaWhiplash wrote: Sun Jan 23, 2022 1:12 pm
Nate79 wrote: Sun Jan 23, 2022 11:59 am
ChinchillaWhiplash wrote: Sun Jan 23, 2022 11:18 am
Nate79 wrote: Sun Jan 23, 2022 9:13 am Suggest you use the search box to read the plethora of threads on what people consider substantially identical means.
Cool. Search function has been improved I see. If CUSIP is not same, security is not identical. This is the main point I have gleaned from the search. Otherwise there is a ton of debate and little consensus between posters. How does one find the CUSIP of a security? And, yes, I did a search on this and found people asking the same question and NOT finding an answer.
There is no consensus because there is no specific rules to define what substantially identical means. So I will give my opinion on if 2 funds are substantially identical :
1. Same exact fund - yes
2. Share class of same fund - yes
3. Follows exact same index but from different fund manager/provider - maybe, maybe not but risky
4. Different index - no
5. Different holdings in the fund - no


Thanks for the detailed answer :beer Problem with the leveraged ETFs is that they are not quite the same as a plain vanilla index ETF. Not sure how to look at them in comparison. Seems to be a grey area. For example, how would one compare these 3 funds? VOO which is an index fund that follows the S&P 500 with no leverage. SSO which is S&P w/2x leverage. And finally UPRO S&P w/3x. All 3 of these funds follow the S&P 500 index, but obviously have some differences. Is that difference enough to not be viewed as identical by the IRS? :confused Sounds like that falls into category of answer #3, but maybe less so?
UPRO doesnt track the SP500 index. If it did it would be the world's worst ran fund.
Let's make this a little easier:
Fund 1: S&P500 fund holds 500 different stocks at very specific market weights per the index
UPRO: it holds (as example) 8.94% treasury bills, and a bunch of stocks and maybe other stuff (doesnt matter for the example)

Does fund 1 contain 8.94% treasury bills?

Regardless UPRO is a 3x leveraged fund whose risk level is not even on the same universe as an SP500 fund. They dont follow the same index, they dont have the same strategy, they dont have the same return, holdings, expenses. Actually I'm not even sure what they have in common.
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