tax loss harvesting

[dualstow]

That doesn’t sound terrible, does it?
Those examples are options, not definitions of violations, right?

[pmward]

That's silly. The IRS has never given any clarification on what the identical rule means in regards to a wash sale on mutual funds. They have also never went after anyone for it in regards to mutual funds. My CPA has me just change funds but stay in a similar index. So something like going from ITOT to VTI. He has all his clients do that, and the IRS has never taken issue. Vanguard is throwing in their own interpretation of the law, but in the end the only interpretation that matters is the courts. And until there is precedent set in court for mutual fund and ETF wash sales I personally am not going to worry about it. I think the odds of me specifically being the initial example target are low. They will go after a much larger fish than me if they want to get precedent on record for this.

[dualstow]

I mean like Total Market for S&P500, people have been swapping those for ages. I doubt that there are that many pairs that Vanguard would flag.

https://www.bogleheads.org/w/index.php? ... tute_funds

Yes, clear guidance would certainly be helpful.

[boglerdude]

They should just not allow you to deduct losses, since its too difficult to determine if funds are "too similar"

Bogleheads shouldnt be condoning this, it's against the spirit of the law
https://www.bogleheads.org/w/index.php? ... tute_funds

[sophie]

Fidelity warns you automatically of at least some wash sale situations before you hit the button - does Vanguard not do that?

Sounds like different benchmarks within an asset class might be a problem, and I can understand that. I exchanged VSIAX (small cap value) with VTMSX (tax-managed small cap index) without triggering any red flags on my 2018 return. Those use benchmarks that some might consider similar, but the tax-managed aspect of one fund likely increased the safety.

[Kbg]

Most mainstream tax advice is do not go from Index Fund Company A to same Index Fund Company B or you are setting yourself up for a potential IRS visit. But what is substantially the same is in the eye of the beholder. So in Sophie's example, one could make the argument that how the fund was managed is substantively different (tax effects). Meanwhile, going from a cap weighted index to an equal weighted index of the same index is also probably defensible, going from any actively managed fund to a different actively managed fund is probably defensible.

Also...don't forget. This rule applies across all of your accounts. So you can't do a shell game between tax loss harvesting in your taxable account and repurchasing the same thing in your tax sheltered accounts.

As a minimum (assuming personal integrity), ensure you have a clear idea in your head how the funds are different. If you can do that, you are probably fine.

[sophie]

Also...don't forget. This rule applies across all of your accounts. So you can't do a shell game between tax loss harvesting in your taxable account and repurchasing the same thing in your tax sheltered accounts.

Actually, the rule applies only to IRAs (read the IRS pub). 401Ks are exempt because especially at the time the law was written, there was limited user control of these accounts. HSAs are a new beast so they're also technically exempt. Similarly, a solo 401K should also be excluded. However, I'm not sure I'd want to test those waters without talking to someone at Fidelity or a tax accountant.

A couple of other gotchas to be wary of: beware of having cap gains & dividends automatically reinvested, and remember that the wash sale rule is actually 61 days not 30: it applies starting 30 days before the sale triggering the loss. I was so nervous about running afoul of one of the various rules that I read the IRS pub before starting, and added a few extra days for safety.