Wash Sales

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Mitchell777
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Wash Sales

Post by Mitchell777 » Sun Apr 14, 2019 12:52 pm

Last week I sold ACINX which I held for many years. Last year's 20% CG distributions were too much to me to endure (this is all outside retirement accounts). I want to buy VFSAX (or ETF VSS). Reading the Wiki, I do not think I need to wait 30 days. They are too different fund companies. One is active management and one is passive. Although both are small cap international. Does that sound right? Thanks

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Sun Apr 14, 2019 1:07 pm

Did you have a capital loss when you sold the fund? If not, then the entire question is moot. Wash sales only apply to losses.

Anyone thinking about wash sales should first go over the IRS publications. Example:

https://www.irs.gov/publications/p550#e ... k100010601
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Thesaints
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Re: Wash Sales

Post by Thesaints » Sun Apr 14, 2019 1:43 pm

Two different issuers is not an ironclad guarantee of avoiding a wash sale. Naturally, neither issuer will report it, but there is always the possibility of an audit.

Active vs. Passive is a lot surer, since generally one could not even theoretically know the actual holdings of the active fund and, therefore, there would not be anything known with any degree of certainty to compare to the passive fund.

livesoft
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Re: Wash Sales

Post by livesoft » Sun Apr 14, 2019 1:57 pm

Mitchell777 wrote:
Sun Apr 14, 2019 12:52 pm
Does that sound right? Thanks
Yes, that sounds right.
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Wiggums
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Re: Wash Sales

Post by Wiggums » Sun Apr 14, 2019 2:00 pm

livesoft wrote:
Sun Apr 14, 2019 1:57 pm
Mitchell777 wrote:
Sun Apr 14, 2019 12:52 pm
Does that sound right? Thanks
Yes, that sounds right.
I agree.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Sun Apr 14, 2019 2:04 pm

Thesaints wrote:
Sun Apr 14, 2019 1:43 pm
Two different issuers is not an ironclad guarantee of avoiding a wash sale. Naturally, neither issuer will report it, but there is always the possibility of an audit.
Nothing is ironclad. The IRS has produced no guidance. I for one think that different fund companies is a strong factor.
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Thesaints
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Re: Wash Sales

Post by Thesaints » Sun Apr 14, 2019 2:14 pm

I think you can be sure that if audited exchanging between two S&P500 index funds will be recognized as a wash sale. The holdings of both are known with certainty at any time and they are identical (no additional guideline needed). I’m assuming both funds follow a replication method to track the index.
There would be uncertainty if one, or both, followed a sampling method.
Let’s remember the law says “substantially identical”, not just “identical”.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Sun Apr 14, 2019 2:32 pm

Thesaints wrote:
Sun Apr 14, 2019 2:14 pm
I think you can be sure that if audited exchanging between two S&P500 index funds will be recognized as a wash sale.
Based on what? Nothing in the IRS publications indicates that the holdings are the only or primary factors that determine whether funds are substantially identical. There is very good reason, based on my research, that different fund companies would be higher precedent.

As a demonstration of my faith in my conclusions, I have sold VOO at a loss and bought IVV. Not only do I not fear an audit, but if I happened I'd welcome it as a point of real evidence in the entire question.
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Mitchell777
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Re: Wash Sales

Post by Mitchell777 » Sun Apr 14, 2019 5:02 pm

This is where I get a bit more confused. I sold all my remaining shares in ACINX (average cost basis). Approx 55% covered/45% uncovered shares. The sale is a gain/profit overall since I've had these shares for decades, but for the covered shares it is a loss.

rkhusky
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Re: Wash Sales

Post by rkhusky » Sun Apr 14, 2019 5:11 pm

Mitchell777 wrote:
Sun Apr 14, 2019 5:02 pm
This is where I get a bit more confused. I sold all my remaining shares in ACINX (average cost basis). Approx 55% covered/45% uncovered shares. The sale is a gain/profit overall since I've had these shares for decades, but for the covered shares it is a loss.
For average cost basis, the basis of all shares is the average cost (the purchase price only matters insofar as it affects the average). If there is an overall gain, then all shares have a gain. No wash sale. This assumes you sold all shares for the same price.
Last edited by rkhusky on Sun Apr 14, 2019 5:24 pm, edited 2 times in total.

Thesaints
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Re: Wash Sales

Post by Thesaints » Sun Apr 14, 2019 5:17 pm

Earl Lemongrab wrote:
Sun Apr 14, 2019 2:32 pm
Thesaints wrote:
Sun Apr 14, 2019 2:14 pm
I think you can be sure that if audited exchanging between two S&P500 index funds will be recognized as a wash sale.
Based on what? Nothing in the IRS publications indicates that the holdings are the only or primary factors that determine whether funds are substantially identical. There is very good reason, based on my research, that different fund companies would be higher precedent.

As a demonstration of my faith in my conclusions, I have sold VOO at a loss and bought IVV. Not only do I not fear an audit, but if I happened I'd welcome it as a point of real evidence in the entire question.
Two etf’s on the same index are a slam dunk. Your auditor won’t even have to worry about index replication techniques; the creation units hold identical securities.

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Nate79
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Re: Wash Sales

Post by Nate79 » Sun Apr 14, 2019 5:32 pm

Thesaints wrote:
Sun Apr 14, 2019 5:17 pm
Earl Lemongrab wrote:
Sun Apr 14, 2019 2:32 pm
Thesaints wrote:
Sun Apr 14, 2019 2:14 pm
I think you can be sure that if audited exchanging between two S&P500 index funds will be recognized as a wash sale.
Based on what? Nothing in the IRS publications indicates that the holdings are the only or primary factors that determine whether funds are substantially identical. There is very good reason, based on my research, that different fund companies would be higher precedent.

As a demonstration of my faith in my conclusions, I have sold VOO at a loss and bought IVV. Not only do I not fear an audit, but if I happened I'd welcome it as a point of real evidence in the entire question.
Two etf’s on the same index are a slam dunk. Your auditor won’t even have to worry about index replication techniques; the creation units hold identical securities.
Previous IRS guidance specifically disagreed with you. Two different mutual funds can not be substantially identical.

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Re: Wash Sales

Post by Horsefly » Sun Apr 14, 2019 7:10 pm

Although I would not have thought so, it looks like Nate is right, to the degree that Investopedia is up to date.

https://www.investopedia.com/terms/s/su ... curity.asp
The rationale is that the two S&P 500 ETFs have different fund managers, different expense ratios, may replicate the underlying index using a different methodology, and may have different levels of liquidity in the market. Presently, the IRS does not deem this type of transaction as involving substantially identical securities and so it is allowed, although this may be subject to change in the future as the practice becomes more widespread.

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Re: Wash Sales

Post by rkhusky » Sun Apr 14, 2019 8:10 pm

The correct answer is that no one knows the right answer since the IRS has not clarified wash sales for mutual funds. The investor must use his best judgment and decide how close to the edge he is willing to go.

The Investopedia article does not provide a reference for the IRS deeming, which I would be interested to see.
Last edited by rkhusky on Sun Apr 14, 2019 9:03 pm, edited 1 time in total.

Thesaints
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Re: Wash Sales

Post by Thesaints » Sun Apr 14, 2019 9:01 pm

Nate79 wrote:
Sun Apr 14, 2019 5:32 pm
Previous IRS guidance specifically disagreed with you. Two different mutual funds can not be substantially identical.
Such as ?

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Nate79
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Re: Wash Sales

Post by Nate79 » Sun Apr 14, 2019 9:32 pm

Thesaints wrote:
Sun Apr 14, 2019 9:01 pm
Nate79 wrote:
Sun Apr 14, 2019 5:32 pm
Previous IRS guidance specifically disagreed with you. Two different mutual funds can not be substantially identical.
Such as ?
I'm confused. You said slam dunk and "can be sure" yet are not aware of previous IRS guidance on this issue? Its nothing new and been posted tons of times in the past.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Sun Apr 14, 2019 11:49 pm

Thesaints wrote:
Sun Apr 14, 2019 5:17 pm
Two etf’s on the same index are a slam dunk. Your auditor won’t even have to worry about index replication techniques; the creation units hold identical securities.
Not a slam dunk. Where do you get your information? The IRS has never said anything about indexes.
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Re: Wash Sales

Post by Thesaints » Mon Apr 15, 2019 12:13 am

Nate79 wrote:
Sun Apr 14, 2019 9:32 pm
Thesaints wrote:
Sun Apr 14, 2019 9:01 pm
Nate79 wrote:
Sun Apr 14, 2019 5:32 pm
Previous IRS guidance specifically disagreed with you. Two different mutual funds can not be substantially identical.
Such as ?
I'm confused. You said slam dunk and "can be sure" yet are not aware of previous IRS guidance on this issue? Its nothing new and been posted tons of times in the past.
The IRS said that exchanging between two S&P500 etf’s is not a wash sale ? I don’t think so.

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Nate79
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Re: Wash Sales

Post by Nate79 » Mon Apr 15, 2019 6:15 am

Thesaints wrote:
Mon Apr 15, 2019 12:13 am
Nate79 wrote:
Sun Apr 14, 2019 9:32 pm
Thesaints wrote:
Sun Apr 14, 2019 9:01 pm
Nate79 wrote:
Sun Apr 14, 2019 5:32 pm
Previous IRS guidance specifically disagreed with you. Two different mutual funds can not be substantially identical.
Such as ?
I'm confused. You said slam dunk and "can be sure" yet are not aware of previous IRS guidance on this issue? Its nothing new and been posted tons of times in the past.
The IRS said that exchanging between two S&P500 etf’s is not a wash sale ? I don’t think so.
IRS Publication 564. Mutual funds as I said.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Mon Apr 15, 2019 10:35 am

Thesaints wrote:
Mon Apr 15, 2019 12:13 am
The IRS said that exchanging between two S&P500 etf’s is not a wash sale ? I don’t think so.
Nor did they say it was.
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Re: Wash Sales

Post by Horsefly » Mon Apr 15, 2019 2:19 pm

The way I read the Investopedia article I linked to earlier in this thread, it seems as though the IRS does not (as of the writing of the Investopedia article) consider two separate S&P 500 ETFs to be "substantially identical". It also said that the IRS may in the future revisit such a consideration.

I would have to believe that some BH has already tested this, e.g. selling some Vanguard S&P 500 to tax loss harvest and buying some SPY less than 30 days later. I wish someone would chime in.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Mon Apr 15, 2019 5:17 pm

Horsefly wrote:
Mon Apr 15, 2019 2:19 pm
The way I read the Investopedia article I linked to earlier in this thread, it seems as though the IRS does not (as of the writing of the Investopedia article) consider two separate S&P 500 ETFs to be "substantially identical". It also said that the IRS may in the future revisit such a consideration.

I would have to believe that some BH has already tested this, e.g. selling some Vanguard S&P 500 to tax loss harvest and buying some SPY less than 30 days later. I wish someone would chime in.
What you have to understand is that any "test" is indeterminant if it's negative. That is, if I sell VOO at a loss and buy IVV, then the IRS not complaining isn't definitive. They just might not have noticed as I didn't report it as a wash sale.
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Thesaints
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Re: Wash Sales

Post by Thesaints » Mon Apr 15, 2019 5:21 pm

Earl Lemongrab wrote:
Mon Apr 15, 2019 10:35 am
Thesaints wrote:
Mon Apr 15, 2019 12:13 am
The IRS said that exchanging between two S&P500 etf’s is not a wash sale ? I don’t think so.
Nor did they say it was.
You wrote about exchanging VOO for IVV. Those are not even just "substantially identical", but actually "identical". Good luck with bringing Investopedia to an audit.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Mon Apr 15, 2019 8:03 pm

Thesaints wrote:
Mon Apr 15, 2019 5:21 pm
Earl Lemongrab wrote:
Mon Apr 15, 2019 10:35 am
Thesaints wrote:
Mon Apr 15, 2019 12:13 am
The IRS said that exchanging between two S&P500 etf’s is not a wash sale ? I don’t think so.
Nor did they say it was.
You wrote about exchanging VOO for IVV. Those are not even just "substantially identical", but actually "identical". Good luck with bringing Investopedia to an audit.
They are not identical. They are from different providers. I wouldn't bring a web site. I'd bring IRS publications.

You seem very confused about what you're saying. This is the last I'll post. Look up some of the past discussions I've had with others if you want more.
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rkhusky
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Re: Wash Sales

Post by rkhusky » Tue Apr 16, 2019 6:46 am

Nate79 wrote:
Mon Apr 15, 2019 6:15 am
IRS Publication 564. Mutual funds as I said.
To be fair, that is a ten-year-old publication that is no longer valid. Current IRS publications do not include that language. Perhaps the IRS realized it was a mistake and took the statement out of current literature.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Tue Apr 16, 2019 11:17 am

rkhusky wrote:
Tue Apr 16, 2019 6:46 am
Nate79 wrote:
Mon Apr 15, 2019 6:15 am
IRS Publication 564. Mutual funds as I said.
To be fair, that is a ten-year-old publication that is no longer valid. Current IRS publications do not include that language. Perhaps the IRS realized it was a mistake and took the statement out of current literature.
Well, not really. They combined it with 550. I'd say they realized it was redundant and covered in 550.

Most of the mutual fund specific language wasn't repeated, but there is more general phrasing along the same lines. In particular, it says "Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation."

Mutual funds and ETFs are securities.
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rkhusky
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Re: Wash Sales

Post by rkhusky » Tue Apr 16, 2019 9:39 pm

Earl Lemongrab wrote:
Tue Apr 16, 2019 11:17 am
In particular, it says "Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation."
I suppose that could be referring to mutual funds, but it is more likely simply referring to stocks and bonds of companies like Apple and Google.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Tue Apr 16, 2019 11:25 pm

rkhusky wrote:
Tue Apr 16, 2019 9:39 pm
Earl Lemongrab wrote:
Tue Apr 16, 2019 11:17 am
In particular, it says "Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation."
I suppose that could be referring to mutual funds, but it is more likely simply referring to stocks and bonds of companies like Apple and Google.
Possibly. Unfortunately, people seem the think the rules are more clearly spelled out than they are. It's really very vague. Obviously we've had numerous discussions on the subject, and it's not really my goal so much to convince anyone as to make them think about the situation and read over the publications.
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rkhusky
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Re: Wash Sales

Post by rkhusky » Wed Apr 17, 2019 7:35 am

Earl Lemongrab wrote:
Tue Apr 16, 2019 11:25 pm
rkhusky wrote:
Tue Apr 16, 2019 9:39 pm
Earl Lemongrab wrote:
Tue Apr 16, 2019 11:17 am
In particular, it says "Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation."
I suppose that could be referring to mutual funds, but it is more likely simply referring to stocks and bonds of companies like Apple and Google.
Possibly. Unfortunately, people seem the think the rules are more clearly spelled out than they are. It's really very vague. Obviously we've had numerous discussions on the subject, and it's not really my goal so much to convince anyone as to make them think about the situation and read over the publications.
Mutual funds can be organized as a corporation or a trust. Vanguard and Fidelity mutual funds appear to be structured as trusts, i.e. they have a board of trustees.

Thesaints
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Re: Wash Sales

Post by Thesaints » Wed Apr 17, 2019 12:29 pm

Earl Lemongrab wrote:
Tue Apr 16, 2019 11:17 am
rkhusky wrote:
Tue Apr 16, 2019 6:46 am
Nate79 wrote:
Mon Apr 15, 2019 6:15 am
IRS Publication 564. Mutual funds as I said.
To be fair, that is a ten-year-old publication that is no longer valid. Current IRS publications do not include that language. Perhaps the IRS realized it was a mistake and took the statement out of current literature.
Well, not really. They combined it with 550. I'd say they realized it was redundant and covered in 550.

Most of the mutual fund specific language wasn't repeated, but there is more general phrasing along the same lines. In particular, it says "Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation."

Mutual funds and ETFs are securities.
Yeah, but they are not "stocks or securities of one corporation". They are a basket of stocks and security of a number of corporations and in the case of VOO and IVV those baskets are identical.

The way you propose to justify your maneuver to the auditor is tantamount to saying that you started with AAA and BBB stocks, sold them and immediately repurchased AAA and BBB stocks, but it is not a wash sale because you replaced AAA with BBB and BBB with AAA. Clearly the court would also get mad at you for wasting their time.

rkhusky
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Re: Wash Sales

Post by rkhusky » Wed Apr 17, 2019 1:32 pm

Thesaints wrote:
Wed Apr 17, 2019 12:29 pm
Yeah, but they are not "stocks or securities of one corporation". They are a basket of stocks and security of a number of corporations and in the case of VOO and IVV those baskets are identical.
VOO and IVV are not identical - there are slight differences in holding percentages for example. However, most people would consider them substantially identical. Unfortunately, the IRS has not defined how close to identical two mutual funds must be in order to be substantially identical: is it 99.999% or 99.9% or 90%? For example, are VOO and VFIAX identical or substantially identical? There have been a few rulings on bonds that one could use to get a feeling for how close the IRS considers two bonds to be substantially identical.

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Earl Lemongrab
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Re: Wash Sales

Post by Earl Lemongrab » Wed Apr 17, 2019 4:15 pm

Thesaints wrote:
Wed Apr 17, 2019 12:29 pm
Yeah, but they are not "stocks or securities of one corporation". They are a basket of stocks and security of a number of corporations and in the case of VOO and IVV those baskets are identical.
That's incorrect. They are securities, that's why they have unique CUSIPs.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
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Re: Wash Sales

Post by rkhusky » Wed Apr 17, 2019 5:04 pm

Earl Lemongrab wrote:
Wed Apr 17, 2019 4:15 pm
Thesaints wrote:
Wed Apr 17, 2019 12:29 pm
Yeah, but they are not "stocks or securities of one corporation". They are a basket of stocks and security of a number of corporations and in the case of VOO and IVV those baskets are identical.
That's incorrect. They are securities, that's why they have unique CUSIPs.
It seems to me that mutual funds are corporations or trusts. The shares they sell would be the securities.

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