Question about Tax Loss Harvesting

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Abe
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Question about Tax Loss Harvesting

Post by Abe » Tue Mar 24, 2020 12:25 pm

I thought I would sell a few mutual funds during this downturn and take advantage of Tax Loss Harvesting. I was going to do it today, but the market has bounced back about 9% today, and since I don't think this downturn is over I'll wait a while and see what happens before I pull the trigger. I was planning on selling Long Leaf Partners Fund (LLPFX), American Funds, Capital Income Builder (CIBFC), Finmore Value Fund (FAMVX) and maybe Dodge and Cox Stock Fund (DODGX). My plan was to sell these funds and immediately (same day) reinvest the proceeds in Vanguard Total Stock Market Index Fund (VTSAX). The funds I plan to sell are managed funds and of course the VG Total Stock Index Fund is passive. I just want to be sure that this would NOT be considered a wash sale by the IRS.
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livesoft
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Re: Question about Tax Loss Harvesting

Post by livesoft » Tue Mar 24, 2020 12:47 pm

I don't think the IRS would consider those a wash sale, but ...

Since they are different fund family than Vanguard, I don't think you can sell and buy on the same day. I think you will probably have to sell and buy back on another day. If you don't think the down days are over, then today would be a most excellent day to sell all those actively managed funds. Then in the future it may be possible to buy your selected Vanguard funds at a lower NAV than they will have closed at today.

And if you cannot bring yourself to do this with all your funds today, then you should at least do it with one of your funds today to see how this all works. That way, you will not be surprised by the inability to do an exchange on the same day.
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dbr
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Re: Question about Tax Loss Harvesting

Post by dbr » Tue Mar 24, 2020 1:20 pm

The IRS does not currently have a "consideration" of wash sales of not exactly identical mutual funds or ETFs. When and in what way they might eventually enforce a wash sale rule on not exactly identical mutual funds remains to be seen. Also, we are not aware of any broker flagging not identical mutual fund replacements as wash sales when they maintain and report basis data. The issue was even asked the other day if brokers flag replacing mutual fund shares with ETF shares of the same fund. People are pretty sure selling a fund and buying the ETF is replacing identically.

No one posting here has ever been able to quote any statements from the IRS regarding when or how they want to deal with this issue. An intriguing observation is that a few years ago there was a statement in IRS Publication 550 that no two different mutual funds are substantially identical. But that short mention has not been there for awhile. That statement would certainly be a clarification that would be most helpful.

As ever, if anyone is plagued by worries over it, the option is always open to avoid buying replacement shares inside the wash sale window and then just replace the original position.

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Abe
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Re: Question about Tax Loss Harvesting

Post by Abe » Tue Mar 24, 2020 1:41 pm

livesoft wrote:
Tue Mar 24, 2020 12:47 pm
I don't think the IRS would consider those a wash sale, but ...

Since they are different fund family than Vanguard, I don't think you can sell and buy on the same day. I think you will probably have to sell and buy back on another day. If you don't think the down days are over, then today would be a most excellent day to sell all those actively managed funds. Then in the future it may be possible to buy your selected Vanguard funds at a lower NAV than they will have closed at today.

And if you cannot bring yourself to do this with all your funds today, then you should at least do it with one of your funds today to see how this all works. That way, you will not be surprised by the inability to do an exchange on the same day.
Okay thanks livesoft. I didn't mention it in my OP, but I have enough money in my Vanguard Money Market Fund to immediately invest the same amount that I receive from the sale of the four funds into the VG Total Stock Fund, and when I receive the proceeds from the sale, I could replace the funds in my Money Market Fund. My thinking was that the sale and buy would be at the same market level if I did it that way. Thanks again.
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FactualFran
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Re: Question about Tax Loss Harvesting

Post by FactualFran » Wed Mar 25, 2020 2:25 pm

dbr wrote:
Tue Mar 24, 2020 1:20 pm
No one posting here has ever been able to quote any statements from the IRS regarding when or how they want to deal with this issue. An intriguing observation is that a few years ago there was a statement in IRS Publication 550 that no two different mutual funds are substantially identical. But that short mention has not been there for awhile. That statement would certainly be a clarification that would be most helpful.
Page 8 of IRS Publication 564 for 2009, the last year that it was published, contains the paragraph:
Substantially Identical. In determining whether the shares are substantially identical, you must consider all the facts and circumstances. Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.
That publication for many prior years contained the same type of paragraph.

The first word of the second sentence ("Ordinarily") is significant. Shares issued by one mutual fund could be considered to be substantially identical to shares issued by another mutual fund, although ordinarily they are not.

dbr
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Re: Question about Tax Loss Harvesting

Post by dbr » Wed Mar 25, 2020 2:29 pm

FactualFran wrote:
Wed Mar 25, 2020 2:25 pm
dbr wrote:
Tue Mar 24, 2020 1:20 pm
No one posting here has ever been able to quote any statements from the IRS regarding when or how they want to deal with this issue. An intriguing observation is that a few years ago there was a statement in IRS Publication 550 that no two different mutual funds are substantially identical. But that short mention has not been there for awhile. That statement would certainly be a clarification that would be most helpful.
Page 8 of IRS Publication 564 for 2009, the last year that it was published, contains the paragraph:
Substantially Identical. In determining whether the shares are substantially identical, you must consider all the facts and circumstances. Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.
That publication for many prior years contained the same type of paragraph.

The first word of the second sentence ("Ordinarily") is significant. Shares issued by one mutual fund could be considered to be substantially identical to shares issued by another mutual fund, although ordinarily they are not.
So even when they addressed it, they waffled.

Thanks for the info.

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