Tax loss harvesting

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ppnewbie
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Tax loss harvesting

Post by ppnewbie » Tue May 21, 2019 3:55 pm

Been looking around the forum. Has anyone tried finding two different but similar assets for each class and then harvesting a loss before rebalancing? For example if I was down on VTI and sold it could I purchase the same amount of SCHB (or ITOT) before rebalancing.
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Xan
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Re: Tax loss harvesting

Post by Xan » Tue May 21, 2019 4:03 pm

You need to be careful with that. I believe the rule is that the replacement investment can't be "substantially identical". Two S&P 500 indices would almost certainly fall afoul of that.

But if you're switching between total market and S&P for example, you might be in the clear.

For example, for gold, switching between GLD and IAU would be a problem. But switching between an open-ended fund and a closed-ended fund would probably be okay.
pmward
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Re: Tax loss harvesting

Post by pmward » Tue May 21, 2019 4:16 pm

There are no actual laws, precedent, or clarification from the IRS at all defining what "substantially identical" actually means in the context of a mutual fund or ETF. Any interpretations you read are simply what someone on the internet assumed. My CPA has me and all his clients move between the same index at different companies. So I will go from something like IVV to SPY, IAU to AAAU (or even physical), a long bond to another long bond with a different yield and maturity, etc. Until there is actual precedent from the courts or clarification from the IRS I personally don't worry about it. I'm too small of a fry to be the first person they choose go after in court over this. If they make a change to clarify, odds are it will be forward looking not something they will go after people in the past for, especially since it's so common and widespread.

TLDR anything you read on the internet about this, including what I just wrote above, is all subjective opinion. Nobody, the courts and IRS included, knows what "substantially identical" means in the context of a mutual fund or ETF. You really just have to make your best guess and do what you feel safe doing.
ppnewbie
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Re: Tax loss harvesting

Post by ppnewbie » Tue May 21, 2019 11:30 pm

Thanks very helpful. I know an investment banker who pretty much tells me the same thing, that the IRS is not interested in every day investors.
ppnewbie
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Re: Tax loss harvesting

Post by ppnewbie » Wed May 22, 2019 9:35 pm

Good article on Tax Loss Harvesting

https://www.kitces.com/blog/the-wash-sa ... -and-etfs/
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