Tax Loss Harvest Question

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nix4me
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Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 2:59 pm

My wife invests every month in VTSAX in her Roth IRA.
I want to sell some shares of VTI in our taxable account, and buy VOO.

Is this a wash sale?

livesoft
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Re: Tax Loss Harvest Question

Post by livesoft » Sat Jun 27, 2020 3:04 pm

Only if you sell VTI at a loss and if you or your spouse have bought OTHER shares that either of you still hold of VTI or VTSAX within 30 days before you sold for a loss or within 30 days after you sold for a loss.

Both VTI and VTSAX paid dividends or will pay dividends around now, so what did you all do with your dividends? If the money was used to buy more shares of VTI and VTSAX, then that could or could not be something to consider as well.

So without more info from you, I will say, "Yes."
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Ryzan
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Re: Tax Loss Harvest Question

Post by Ryzan » Sat Jun 27, 2020 3:10 pm

livesoft wrote:
Sat Jun 27, 2020 3:04 pm
Only if you sell VTI at a loss and if you or your spouse have bought OTHER shares that either of you still hold of VTI or VTSAX within 30 days before you sold for a loss or within 30 days after you sold for a loss.
Wait... maybe I'm misunderstanding, but does that mean that selling VTI at a loss from a taxable account and buying VTI in a tax-advantaged account (the Roth IRA) is considered a wash sale?

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nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 3:11 pm

So your saying VTSAX and VTI are considered substantially identical according to the IRS? That’s my real question.

I understand the 30 day before and after rule for VTI.

Topic Author
nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 3:12 pm

Ryzan wrote:
Sat Jun 27, 2020 3:10 pm
livesoft wrote:
Sat Jun 27, 2020 3:04 pm
Only if you sell VTI at a loss and if you or your spouse have bought OTHER shares that either of you still hold of VTI or VTSAX within 30 days before you sold for a loss or within 30 days after you sold for a loss.
Wait... maybe I'm misunderstanding, but does that mean that selling VTI at a loss from a taxable account and buying VTI in a tax-advantaged account (the Roth IRA) is considered a wash sale?
Correct. The IRS ruled on that. But I’m asking if VTSAX and VTI are considered the same by the IRS

retiredjg
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Re: Tax Loss Harvest Question

Post by retiredjg » Sat Jun 27, 2020 3:21 pm

nix4me wrote:
Sat Jun 27, 2020 3:12 pm
Correct. The IRS ruled on that. But I’m asking if VTSAX and VTI are considered the same by the IRS
Nobody knows what the IRS thinks, but essentially everybody thinks they are the same because they are different share classes of the same thing.

Ryzan
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Re: Tax Loss Harvest Question

Post by Ryzan » Sat Jun 27, 2020 3:37 pm

nix4me wrote:
Sat Jun 27, 2020 3:12 pm
Correct. The IRS ruled on that.
Sorry to hijack your thread, but you are 100% correct. IRS Revenue Ruling 2008-5 addresses that. So I learned something today! About 30% of my TLH in April was a mistake; 70% was A-OK. An expensive lesson, no doubt, but better now than 10 years later at 10x the amount.

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nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 3:38 pm

Well that sucks. Guess I should not use VTI in my taxable account then. I should use VOO and then loss harvest that to IVV.

Ryzan
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Re: Tax Loss Harvest Question

Post by Ryzan » Sat Jun 27, 2020 3:44 pm

nix4me wrote:
Sat Jun 27, 2020 3:38 pm
Well that sucks. Guess I should not use VTI in my taxable account then. I should use VOO and then loss harvest that to IVV.
To be clear, I was responding to the issue of tax-advantaged accounts not being a shield against wash sales. That's what the ruling is about. Not whether VTI and VTSAX are the same....

livesoft
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Re: Tax Loss Harvest Question

Post by livesoft » Sat Jun 27, 2020 3:47 pm

Ryzan wrote:
Sat Jun 27, 2020 3:37 pm
Sorry to hijack your thread, but you are 100% correct. IRS Revenue Ruling 2008-5 addresses that. So I learned something today! About 30% of my TLH in April was a mistake; 70% was A-OK. An expensive lesson, no doubt, but better now than 10 years later at 10x the amount.
One doesn't have to know about an obscure IRS Revenue Ruling because the IRS puts all this front-and-center in IRS Publication 550 where wash sales are discussed in some detail.

As for VTI and VTSAX being substantially identical, to my knowledge the IRS has not explicitly said so, but most folks who believe they are substantially identical point to the fact that Vanguard will do a tax-free (tax-neutral) conversion from VTSAX shares to VTI shares for shareholders of VTSAX upon request.
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Topic Author
nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 5:09 pm

livesoft wrote:
Sat Jun 27, 2020 3:47 pm
Ryzan wrote:
Sat Jun 27, 2020 3:37 pm
Sorry to hijack your thread, but you are 100% correct. IRS Revenue Ruling 2008-5 addresses that. So I learned something today! About 30% of my TLH in April was a mistake; 70% was A-OK. An expensive lesson, no doubt, but better now than 10 years later at 10x the amount.
One doesn't have to know about an obscure IRS Revenue Ruling because the IRS puts all this front-and-center in IRS Publication 550 where wash sales are discussed in some detail.

As for VTI and VTSAX being substantially identical, to my knowledge the IRS has not explicitly said so, but most folks who believe they are substantially identical point to the fact that Vanguard will do a tax-free (tax-neutral) conversion from VTSAX shares to VTI shares for shareholders of VTSAX upon request.
Doesn't matter what "most folks" think - it matters what the IRS thinks. And like most tax things, this question is not crystal clear in the publication. Thanks for the help.

Topic Author
nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 5:12 pm

I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.

livesoft
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Re: Tax Loss Harvest Question

Post by livesoft » Sat Jun 27, 2020 5:34 pm

Sounds like you are looking to accept a false positive result. It would be interesting to learn if one sold VTSAX in taxable for a loss and then bought VTI in the same account, whether Vanguard itself would flag that as a wash sale. That is, do not buy in another account for such a test. (Hmmm, I might just do this myself to see the result.)
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retiredjg
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Re: Tax Loss Harvest Question

Post by retiredjg » Sat Jun 27, 2020 5:49 pm

nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
The Investor shares of Total stock have a different CUSIP from the Admiral shares of the same fund. Would you use that to argue they are not substantially identical?

There are very few things about wash sales that seem pretty clear to pretty much everyone. This is one of them.

shess
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Re: Tax Loss Harvest Question

Post by shess » Sat Jun 27, 2020 6:01 pm

nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
If you sell VTI for a loss in your taxable account and purchase VTI in your IRA, it is a wash sale, but nobody will ring you up and say "OMG, you just made a wash sale!" There are no reporting requirements for IRA trades. But if in a few years you get audited, they might pull up the past 3 years of records, notice a bunch of sales for losses, and then request your IRA records, at which point they could establish a pattern of wash sales. As a general rule, the IRS is not in the business of telling you what you can get away with, it's in the business of telling you that you can't get away with something you did. Much of tax law is set by precedent - someone tried to get away with something, got taken to court, and the decision went against them.

Personally, I would be wary of switching between share classes of the same fund like this. They are self-evidently the same thing, in the same way that different share classes on a closed-end fund are self-evidently same thing. You can even convert the mutual fund shares into ETF shares without a taxable event.

Topic Author
nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 6:22 pm

shess wrote:
Sat Jun 27, 2020 6:01 pm
nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
If you sell VTI for a loss in your taxable account and purchase VTI in your IRA, it is a wash sale, but nobody will ring you up and say "OMG, you just made a wash sale!" There are no reporting requirements for IRA trades. But if in a few years you get audited, they might pull up the past 3 years of records, notice a bunch of sales for losses, and then request your IRA records, at which point they could establish a pattern of wash sales. As a general rule, the IRS is not in the business of telling you what you can get away with, it's in the business of telling you that you can't get away with something you did. Much of tax law is set by precedent - someone tried to get away with something, got taken to court, and the decision went against them.

Personally, I would be wary of switching between share classes of the same fund like this. They are self-evidently the same thing, in the same way that different share classes on a closed-end fund are self-evidently same thing. You can even convert the mutual fund shares into ETF shares without a taxable event.
You are guessing.
I want to sell VTI in taxable and buy VOO.
While my wife continues to invest in VTSAX.

I think it's ok as CUSIP's are different between VTSAX and VTI. The IRS does care about share classes and naming conventions. They are just trying to prevent people selling Ford and buying Ford. I'll keep searching and/or just do it.

jason2459
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Re: Tax Loss Harvest Question

Post by jason2459 » Sat Jun 27, 2020 6:23 pm

Vanguard believes they, VTI and VTSAX, are exactly the same. I would believe they are exactly the same. I would assume the IRS would believe they are exactly the same.

VTI and ITOT would work. They are from different companies, track different indexes, hold different amounts of individual companies stock, hold them at different weights, and each have stock that the other doesn't have making for a more complete "total" stock market holding.

jason2459
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Re: Tax Loss Harvest Question

Post by jason2459 » Sat Jun 27, 2020 6:27 pm

nix4me wrote:
Sat Jun 27, 2020 6:22 pm
shess wrote:
Sat Jun 27, 2020 6:01 pm
nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
If you sell VTI for a loss in your taxable account and purchase VTI in your IRA, it is a wash sale, but nobody will ring you up and say "OMG, you just made a wash sale!" There are no reporting requirements for IRA trades. But if in a few years you get audited, they might pull up the past 3 years of records, notice a bunch of sales for losses, and then request your IRA records, at which point they could establish a pattern of wash sales. As a general rule, the IRS is not in the business of telling you what you can get away with, it's in the business of telling you that you can't get away with something you did. Much of tax law is set by precedent - someone tried to get away with something, got taken to court, and the decision went against them.

Personally, I would be wary of switching between share classes of the same fund like this. They are self-evidently the same thing, in the same way that different share classes on a closed-end fund are self-evidently same thing. You can even convert the mutual fund shares into ETF shares without a taxable event.
You are guessing.
I want to sell VTI in taxable and buy VOO.
While my wife continues to invest in VTSAX.

I think it's ok as CUSIP's are different between VTSAX and VTI. The IRS does care about share classes and naming conventions. They are just trying to prevent people selling Ford and buying Ford. I'll keep searching and/or just do it.
Go for it then. No need to discuss if you've made up your mind. If you feel you have a strong argument if you get audited then just make sure you can provide the evidence.

Topic Author
nix4me
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Re: Tax Loss Harvest Question

Post by nix4me » Sat Jun 27, 2020 6:38 pm

Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.

shess
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Re: Tax Loss Harvest Question

Post by shess » Sat Jun 27, 2020 7:30 pm

nix4me wrote:
Sat Jun 27, 2020 6:22 pm
shess wrote:
Sat Jun 27, 2020 6:01 pm
nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
If you sell VTI for a loss in your taxable account and purchase VTI in your IRA, it is a wash sale, but nobody will ring you up and say "OMG, you just made a wash sale!" There are no reporting requirements for IRA trades. But if in a few years you get audited, they might pull up the past 3 years of records, notice a bunch of sales for losses, and then request your IRA records, at which point they could establish a pattern of wash sales. As a general rule, the IRS is not in the business of telling you what you can get away with, it's in the business of telling you that you can't get away with something you did. Much of tax law is set by precedent - someone tried to get away with something, got taken to court, and the decision went against them.

Personally, I would be wary of switching between share classes of the same fund like this. They are self-evidently the same thing, in the same way that different share classes on a closed-end fund are self-evidently same thing. You can even convert the mutual fund shares into ETF shares without a taxable event.
You are guessing.
I want to sell VTI in taxable and buy VOO.
While my wife continues to invest in VTSAX.

I think it's ok as CUSIP's are different between VTSAX and VTI. The IRS does care about share classes and naming conventions. They are just trying to prevent people selling Ford and buying Ford. I'll keep searching and/or just do it.
I can literally convert VTSAX shares into VTI shares with no taxable consequences. I don't know how much more identical you can get without just being VTI from the get-go.

Let me put it another way - why doesn't Vanguard or Schwab or Fidelity or iShares just have a series of XXXXTLH funds which are alternate shares on the XXXX fund with different CUSIPs simply for purposes of tax-loss harvesting?

But, yeah, I am just guessing, and, as I mentioned, the IRS isn't going to proactively track you down on it, so it's unlikely that you'll find out any positive information from engaging in this.

That said, pro tip: If you are going to engage in something like this, DO NOT ASK ADVICE ON A PUBLIC FORUM. If you have a half-dozen people saying "Nah, brah, I don't think that's allowed", then it can be construed that you made the disallowed transaction knowingly. Again, I think it's completely unlikely that the IRS would ever track you down, here, but since your position seems to be that you already know what you need to know, better safe than sorry.

shess
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Re: Tax Loss Harvest Question

Post by shess » Sat Jun 27, 2020 7:34 pm

nix4me wrote:
Sat Jun 27, 2020 6:38 pm
Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.
The IRS audited only .59% of individual income tax returns in 2019. I'd be surprised if any of those were initiated due to wash sales. The chances that you'll find any actual information on this are basically zero - we don't even know if VOO and SPY are considered different, and those are obviously more different than VTI and VTSAX are.

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Rowan Oak
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Re: Tax Loss Harvest Question

Post by Rowan Oak » Sat Jun 27, 2020 7:36 pm

nix4me wrote:
Sat Jun 27, 2020 5:12 pm
I think:
VTI - CUSIP 922908769
VTSAX - CUSIP 922908728

means - not substantially identical. :)

So i might try and it and find out.
Hmmm, different share class of the exact same index mutual fund. If that's not a wash sale I don't know what would be.
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jason2459
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Re: Tax Loss Harvest Question

Post by jason2459 » Sat Jun 27, 2020 10:30 pm

shess wrote:
Sat Jun 27, 2020 7:34 pm
nix4me wrote:
Sat Jun 27, 2020 6:38 pm
Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.
The IRS audited only .59% of individual income tax returns in 2019. I'd be surprised if any of those were initiated due to wash sales. The chances that you'll find any actual information on this are basically zero - we don't even know if VOO and SPY are considered different, and those are obviously more different than VTI and VTSAX are.
They don't even have to have a reason to perform an audit. It can be a random draw. Both of mine were.

rkhusky
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Re: Tax Loss Harvest Question

Post by rkhusky » Sun Jun 28, 2020 7:21 pm

nix4me wrote:
Sat Jun 27, 2020 6:38 pm
Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.
That is incorrect. Different CUSIP just means the brokerage doesn’t have to report it to the IRS. The same for same CUSIP in different accounts, which is also a wash sale not reported to the IRS.

Different CUSIP just means not identical. But wash sale rulings on bonds clearly show that “substantially identical” is less identical than “identical”. Also, the IRS has ruled that preferred stock that is convertible into common stock is substantially identical to the common stock, if certain conditions are met.

And a Supreme Court ruling makes clear that the burden of proof is on the taxpayer to show that a deduction is legitimate. So, you have to prove that VTI and VTSAX are not substantially identical.

And just because you get away with something doesn’t mean that it is correct. A lot of people cheat on their taxes and get away with it, much more egregiously than an ignored wash sale.
Last edited by rkhusky on Mon Jun 29, 2020 7:09 am, edited 1 time in total.

Robert20
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Re: Tax Loss Harvest Question

Post by Robert20 » Sun Jun 28, 2020 7:59 pm

nix4me wrote:
Sat Jun 27, 2020 2:59 pm
My wife invests every month in VTSAX in her Roth IRA.
I want to sell some shares of VTI in our taxable account, and buy VOO.

Is this a wash sale?
One in Roth and one in Taxable.. I dont think you can do TLH in Roth.

rkhusky
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Re: Tax Loss Harvest Question

Post by rkhusky » Mon Jun 29, 2020 6:57 am

Robert20 wrote:
Sun Jun 28, 2020 7:59 pm
nix4me wrote:
Sat Jun 27, 2020 2:59 pm
My wife invests every month in VTSAX in her Roth IRA.
I want to sell some shares of VTI in our taxable account, and buy VOO.

Is this a wash sale?
One in Roth and one in Taxable.. I dont think you can do TLH in Roth.
But you can TLH in taxable and cause a wash sale by buying in the Roth. And that wash sale is permanent since you can't adjust the basis of replacement shares in a Roth.

livesoft
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Re: Tax Loss Harvest Question

Post by livesoft » Mon Jun 29, 2020 7:48 am

rkhusky wrote:
Mon Jun 29, 2020 6:57 am
But you can TLH in taxable and cause a wash sale by buying in the Roth. And that wash sale is permanent since you can't adjust the basis of replacement shares in a Roth.
This is all true, but I would not let a small monthly Roth contribution prevent me from tax-loss harvesting a large position in a taxable account on a Really Bad Day and thereby creating a small partial wash sale and a small disallowed loss. Nor would I let a small dividend reinvestment in a tIRA or Roth prevent me from tax-loss harvesting and creating a small partial wash sale and a small disallowed loss.

It simply astounds me that people seem to hate arithmetic so much that they create more hassles for themselves to avoid doing some simple math. (OK, not really, I have learned a lot about human psychology from reading this forum and almost nothing surprises me anymore.)
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rkhusky
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Re: Tax Loss Harvest Question

Post by rkhusky » Mon Jun 29, 2020 8:05 am

livesoft wrote:
Mon Jun 29, 2020 7:48 am
This is all true, but I would not let a small monthly Roth contribution prevent me from tax-loss harvesting a large position in a taxable account on a Really Bad Day and thereby creating a small partial wash sale and a small disallowed loss. Nor would I let a small dividend reinvestment in a tIRA or Roth prevent me from tax-loss harvesting and creating a small partial wash sale and a small disallowed loss.
True. Since wash sales are on a share vs share basis, if the number of replacement shares is much less than the number of shares TLH'd, you may want to take the small relative wash sale and proceed with the TLH.

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Stinky
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Re: Tax Loss Harvest Question

Post by Stinky » Mon Jun 29, 2020 8:14 am

nix4me wrote:
Sat Jun 27, 2020 6:38 pm
Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.
Best of luck to you. Hope that it works out.

Please post back if you have a hiccup with the IRS. In this case, it sounds like no news (from the IRS) will be good news.
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stan1
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Re: Tax Loss Harvest Question

Post by stan1 » Mon Jun 29, 2020 8:35 am

nix4me wrote:
Sat Jun 27, 2020 6:38 pm
Will do.

Was hoping to find someone that got audited or a tax professional that has been through these audits to verify. But no worries, i'll just do it and provide my evidence. I've found several investment companies that say as long as CUSIP is different you are good to go. So i feel there is hearsay going both ways.
All you will get is hearsay if that's the term you want to use. The IRS has not stated a position, other than letting it go on for 40+ years now since there have been multiple S&P 500 index funds for that long. That's the way it works. Maybe they will make a decision in the future, maybe not. CUSIP is the starting point of the argument you would make if you are ever questioned about it.

With so many possibilities covering US large cap blend/total market (ITOT, SCHB, VTI, SPTM, VOO, IVV, SPLG, Fidelity, more) it isn't that hard to simply avoid taking the risk.

You could also have your wife buy something other than VTSAX in her Roth account.

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