Is the etf and MF equivalent gonna create a wash sale?

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nwffdiver
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Is the etf and MF equivalent gonna create a wash sale?

Post by nwffdiver » Wed Aug 08, 2018 11:33 am

I currently have VFIAX VG 500 index in my taxable along with VFWAX VG FTSE all ex-US as I have VTSAX and VTIAX in my IRAs. If I sold either VFIAX or VFWAX and bought the etf ie. VTI or VXUS would this creat a wash sale due to my IRA holdings?

Just curious, the last time I tax loss harvested I sold VTIAX and bought the VFWAX, but now my wife holds VTIAX in her rollover IRA, and we both have VTSAX in our IRAs.

:confused

livesoft
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by livesoft » Wed Aug 08, 2018 11:37 am

I think VTI is substantially identical to VTSAX and to VTSMX. It is not substantially identical to VFIAX.

I think VXUS is substantially identical to VTIAX and to VGTSX. It is not substantially identical to VFWAX.

Just because something is substantially identical to another something does not make a wash sale.
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nwffdiver
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by nwffdiver » Wed Aug 08, 2018 11:45 am

livesoft wrote:
Wed Aug 08, 2018 11:37 am
I think VTI is substantially identical to VTSAX and to VTSMX. It is not substantially identical to VFIAX.

I think VXUS is substantially identical to VTIAX and to VGTSX. It is not substantially identical to VFWAX.

Just because something is substantially identical to another something does not make a wash sale.
So if I hold those funds ( VTSAX and VTIAX) in my IRAs, and re bought VTSAX or VTIAX in taxable, will that trigger a wash sale?

Nate79
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by Nate79 » Wed Aug 08, 2018 11:49 am

IRA's and taxable accounts count in determining wash sales.

nwffdiver
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by nwffdiver » Wed Aug 08, 2018 11:57 am

Nate79 wrote:
Wed Aug 08, 2018 11:49 am
IRA's and taxable accounts count in determining wash sales.
Sorry to keep asking probably basic questions, does the IRS look at both mine and my wife’s as one?

Also back to my original question if I used an etf vs. the MF is it still considered the same?

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jhfenton
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by jhfenton » Wed Aug 08, 2018 11:59 am

nwffdiver wrote:
Wed Aug 08, 2018 11:33 am
I currently have VFIAX VG 500 index in my taxable along with VFWAX VG FTSE all ex-US as I have VTSAX and VTIAX in my IRAs. If I sold either VFIAX or VFWAX and bought the etf ie. VTI or VXUS would this creat a wash sale due to my IRA holdings?

Just curious, the last time I tax loss harvested I sold VTIAX and bought the VFWAX, but now my wife holds VTIAX in her rollover IRA, and we both have VTSAX in our IRAs.

:confused
As described, your proposed transaction should not create a wash sale. Your sale is of VFIAX and/or VFWAX. Your replacement funds are VTI and/or VXUS, similar, but not substantially identical to the funds on which you might be claiming a loss, VFIAX and VFWAX. Neither, in my opinion, are VTSAX and VTIAX substantially identical to VFIAX and VFWAX.

Any problem would come in the future, when and if you try to sell VTI and/or VXUS at a loss. You would have to be very careful not to have any purchases inside your IRAs or your wife's within 30 days before or 30 days after that would create a wash sale. That would be the worst possible kind of wash sale, with your loss gone forever into the black hole of your IRA.

The IRS does look at yours and your wife's accounts, both taxable and IRA. Brokers won't report wash sales between different accounts, but you are required to report them yourself.

ETF or mutual fund doesn't make a difference. VTI and VTSAX are not just substantially identical, they are identically identical. They are share classes of the same fund. No one disputes that replacing one with the other could create a wash sale.

livesoft
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by livesoft » Wed Aug 08, 2018 12:05 pm

nwffdiver wrote:
Wed Aug 08, 2018 11:45 am
So if I hold those funds ( VTSAX and VTIAX) in my IRAs, and re bought VTSAX or VTIAX in taxable, will that trigger a wash sale?
No, not necessarily. There are a few other conditions for creating a wash sale.

One main thing you have not mentioned in this thread is that you have to sell something in taxable at a loss in order to have any consideration at all about a wash sale. There are other things you have not mentioned as well.
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nwffdiver
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by nwffdiver » Wed Aug 08, 2018 12:28 pm

Thanks for all the help. I am relatively new to the taxable account other than MM, CDs and ibonds. We are fortunate to finally be in a place where we are able to add after maxing out our tax deferred / tax free. I just don’t want to make any unnecessary mistakes!

:sharebeer

Brad

nwffdiver
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by nwffdiver » Wed Aug 08, 2018 12:36 pm

livesoft wrote:
Wed Aug 08, 2018 12:05 pm
nwffdiver wrote:
Wed Aug 08, 2018 11:45 am
So if I hold those funds ( VTSAX and VTIAX) in my IRAs, and re bought VTSAX or VTIAX in taxable, will that trigger a wash sale?
No, not necessarily. There are a few other conditions for creating a wash sale.

One main thing you have not mentioned in this thread is that you have to sell something in taxable at a loss in order to have any consideration at all about a wash sale. There are other things you have not mentioned as well.
I did have VTIAX in taxable earlier this year, I sold for a $750 loss and bought the VFWAX (which I am happy to keep holding). When I added VFIAX , I chose it due to having VTSAX in our IRAs.

I will just find other funds to pair if needed for TLH.

Again thanks for all the great information!

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Earl Lemongrab
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by Earl Lemongrab » Wed Aug 08, 2018 5:02 pm

To clarify, merely holding substantially identical (or identical) assets in an IRA doesn't matter. It's buying them within the exclusion period (+/-30 days of the sale). So don't buy any of those and shut off DRIP starting 31 days before.

BTW, I'm one of the most aggressive TLH people on the forum, and I think different share classes of Vanguard funds have to substantially identical. Otherwise they wouldn't be able to allow tax-free conversion between the classes.
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blackcat allie
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by blackcat allie » Fri Aug 10, 2018 12:47 pm

Nate79 wrote:
Wed Aug 08, 2018 11:49 am
IRA's and taxable accounts count in determining wash sales.
May I ask ... does selling from Roth IRA's count as well? (since there are no declarable tax losses)
I've been balancing out of total international fund in Roth & am wanting to buy more of same ETF in taxable.

Thanks in advance
Last edited by blackcat allie on Fri Aug 10, 2018 12:54 pm, edited 1 time in total.

Nate79
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by Nate79 » Fri Aug 10, 2018 12:54 pm

blackcat allie wrote:
Fri Aug 10, 2018 12:47 pm
Nate79 wrote:
Wed Aug 08, 2018 11:49 am
IRA's and taxable accounts count in determining wash sales.
May I ask ... does selling from Roth IRA's count as well? (since there are no declarable tax losses)
I've been balancing out of total international fund in Roth & am want to buy more of ETF in taxable.

Thanks in advance
Buying and selling in taxable and IRA's can create wash sales. If you have sold a security in a taxable account for a loss, then you could create a wash sale with activity in either taxable accounts or IRA's.

It is only a wash sale if you have sold a security in a taxable account for a loss.

livesoft
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by livesoft » Fri Aug 10, 2018 12:58 pm

blackcat allie wrote:
Fri Aug 10, 2018 12:47 pm
May I ask ... does selling from Roth IRA's count as well?
The direct answer is No. Selling in a Roth IRA, tIRA, or other tax-advantaged account does not create a wash sale.
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Earl Lemongrab
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by Earl Lemongrab » Fri Aug 10, 2018 1:14 pm

Right. Wash sales only apply to tax losses. You can't have one in a Roth. You could have a sale in taxable and purchase in Roth or taxable with no wash if the taxable sale was for a gain. Some people do that as "tax gain harvesting".
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ivk5
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Re: Is the etf and MF equivalent gonna create a wash sale?

Post by ivk5 » Fri Aug 10, 2018 1:19 pm

blackcat allie wrote:
Fri Aug 10, 2018 12:47 pm
Nate79 wrote:
Wed Aug 08, 2018 11:49 am
IRA's and taxable accounts count in determining wash sales.
May I ask ... does selling from Roth IRA's count as well? (since there are no declarable tax losses)
I've been balancing out of total international fund in Roth & am wanting to buy more of same ETF in taxable.

Thanks in advance
It’s buying, not selling, that can cause part of a realized taxable loss to be disallowed.

So buying in Roth (of substantially identical security within 30 days before/after realization of loss in taxable) could create a wash sale, and the disallowed portion would be lost forever (search term: “replacement shares”).

In addition to watching timing of purchases in Roth, you may want to turn off automatic reinvestment of dividends, since that counts as a purchase.

Edited to add: your scenario lacks the first basic requirement for a wash sale, as noted already above: realizing a capital loss in a taxable account. No wash sale if no sale!

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