Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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Last edited by pinebarrens1 on Sat Mar 31, 2012 6:09 am, edited 1 time in total.
dorokhin wrote:Since you're doing this in a taxable account - Keep in mind that the newer products (yes, even ETFs!) have a much higher chance of distributing capital gains based on the cost basis layers within the fund.
That's not just idle speculation. Vanguard said exactly that at their recent conference.
This is an issue with many ETFs; a lot of the iShares ETFs distributed capital gains in their first year or two but not since then. In addition, any gains distributed by an ETF in its first year will be short-term, and thus taxed at a higher rate; older ETFs, if they distribute gains, are likely to have more long-term gains.
But if you are holding a new ETF temporarily for tax loss harvesting, you don't have to worry about this, as you won't be holding it on the day it distributes capital gains (in December).
And even if your temporary replacement fund does distribute a capital gain, that will increase your capital loss or decrease your capital gain when you sell the fund. The only potential cost is that if the fund distributes a short-term gain, that is taxed as ordinary income and cannot be offset by capital losses in excess of $3000.