Tax Loss Harvesting Question

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orenishi
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Tax Loss Harvesting Question

Post by orenishi » Thu Apr 11, 2019 7:53 am

This is most likely a noob question but I am trying to learn more about the tax planning side of investing. I am looking to simplify my holdings and have a number of overlaps. For example, I have a tech ETF, a Financials ETF, and a small cap ETF. I would rather have just a VTSAX fund (Vanguard US Fund) so I will be looking to sell the aforementioned ETF’s. This is all in a taxable account. These ETF’s may have some similar holdings that VTSAX has. So, if the ETF’s decline and I sell them at a loss, and then immediately buy VTSAX, would I be able to deduct the losses at tax time? Since they may have similar holdings, I was curious to know if that would preclude me from writing off the losses.

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RickBoglehead
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Re: Tax Loss Harvesting Question

Post by RickBoglehead » Thu Apr 11, 2019 7:54 am

No, that will not preclude you from deducting those losses.
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Wiggums
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Re: Tax Loss Harvesting Question

Post by Wiggums » Thu Apr 11, 2019 7:58 am

orenishi wrote:
Thu Apr 11, 2019 7:53 am
This is most likely a noob question but I am trying to learn more about the tax planning side of investing. I am looking to simplify my holdings and have a number of overlaps. For example, I have a tech ETF, a Financials ETF, and a small cap ETF. I would rather have just a VTSAX fund (Vanguard US Fund) so I will be looking to sell the aforementioned ETF’s. This is all in a taxable account. These ETF’s may have some similar holdings that VTSAX has. So, if the ETF’s decline and I sell them at a loss, and then immediately buy VTSAX, would I be able to deduct the losses at tax time? Since they may have similar holdings, I was curious to know if that would preclude me from writing off the losses.
You would be able to deduct this losses, up to the IRS max each year.

Topic Author
orenishi
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Re: Tax Loss Harvesting Question

Post by orenishi » Sun Apr 14, 2019 7:04 pm

Thank you both!

Another question - so say I have VTSAX (Vanguard US Stock Mutual Fund) and then sell that at a loss, and then immediately buy VOO (Vanguard S&P 500 ETF). Would I still be able to write off the losses from VTSAX? Since these holdings are nearly identical, would this preclude me from deducting the losses from VTSAX? I'm curious to know why an investor wouldn't simply buy and sell from the mutual fund to the comparable ETF to take advantage of tax loss harvesting? Again, I apologize for the rookie question but I'm simply trying to learn more and preemptively understand before I make any transactions.

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Nate79
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Re: Tax Loss Harvesting Question

Post by Nate79 » Sun Apr 14, 2019 7:36 pm

orenishi wrote:
Sun Apr 14, 2019 7:04 pm
Thank you both!

Another question - so say I have VTSAX (Vanguard US Stock Mutual Fund) and then sell that at a loss, and then immediately buy VOO (Vanguard S&P 500 ETF). Would I still be able to write off the losses from VTSAX? Since these holdings are nearly identical, would this preclude me from deducting the losses from VTSAX? I'm curious to know why an investor wouldn't simply buy and sell from the mutual fund to the comparable ETF to take advantage of tax loss harvesting? Again, I apologize for the rookie question but I'm simply trying to learn more and preemptively understand before I make any transactions.
"Nearly" identical is irrelevant. The term is substantially identical and most would consider an S&P500 and a Total stock market index fund to not be substantially identical (I don't even think it is close).

Triple digit golfer
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Re: Tax Loss Harvesting Question

Post by Triple digit golfer » Sun Apr 14, 2019 7:40 pm

orenishi wrote:
Sun Apr 14, 2019 7:04 pm
Thank you both!

Another question - so say I have VTSAX (Vanguard US Stock Mutual Fund) and then sell that at a loss, and then immediately buy VOO (Vanguard S&P 500 ETF). Would I still be able to write off the losses from VTSAX? Since these holdings are nearly identical, would this preclude me from deducting the losses from VTSAX? I'm curious to know why an investor wouldn't simply buy and sell from the mutual fund to the comparable ETF to take advantage of tax loss harvesting? Again, I apologize for the rookie question but I'm simply trying to learn more and preemptively understand before I make any transactions.
Yes, you can sell total stock and buy 500 index and write off the losses (up to allowed amount each year). The funds are different and do not even track the same index. Many use these two as TLH partners. The same goes for Total International and FTSE all world ex-U.S. very similar performance, suitable substitutes, but different.

What you cannot do is sell and buy the same brain in a different body (i.e. sell 500 index mutual fund and buy 500 index ETF, or sell Vanguard 500 index ETF and buy a different 500 index ETF.)

EFT/mutual fund isn't relevant.

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Earl Lemongrab
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Re: Tax Loss Harvesting Question

Post by Earl Lemongrab » Tue Apr 16, 2019 2:38 pm

Triple digit golfer wrote:
Sun Apr 14, 2019 7:40 pm
Yes, you can sell total stock and buy 500 index and write off the losses (up to allowed amount each year). The funds are different and do not even track the same index. Many use these two as TLH partners. The same goes for Total International and FTSE all world ex-U.S. very similar performance, suitable substitutes, but different.

What you cannot do is sell and buy the same brain in a different body (i.e. sell 500 index mutual fund and buy 500 index ETF, or sell Vanguard 500 index ETF and buy a different 500 index ETF.)

EFT/mutual fund isn't relevant.
Hey, I get to chime in again. The IRS has NEVER said that the same index is relevant. Or that a different one is. People keep acting like this is official word from the IRS. It is NOT!

It does say that "all factors" must be considered. In the past, it said in a publication (564) that ordinarily mutual funds from different companies are usually not substantially identical. That pub was combined with 550, which has more general language that says that substitutes "securities" for "mutual funds". ETFs and funds are securities.

I happily and confidently sold VOO for a loss and bought IVV. I do not believe that these two S&P 500 ETFs are substantially identical.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Triple digit golfer
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Re: Tax Loss Harvesting Question

Post by Triple digit golfer » Tue Apr 16, 2019 3:57 pm

Earl Lemongrab wrote:
Tue Apr 16, 2019 2:38 pm
Triple digit golfer wrote:
Sun Apr 14, 2019 7:40 pm
Yes, you can sell total stock and buy 500 index and write off the losses (up to allowed amount each year). The funds are different and do not even track the same index. Many use these two as TLH partners. The same goes for Total International and FTSE all world ex-U.S. very similar performance, suitable substitutes, but different.

What you cannot do is sell and buy the same brain in a different body (i.e. sell 500 index mutual fund and buy 500 index ETF, or sell Vanguard 500 index ETF and buy a different 500 index ETF.)

EFT/mutual fund isn't relevant.
Hey, I get to chime in again. The IRS has NEVER said that the same index is relevant. Or that a different one is. People keep acting like this is official word from the IRS. It is NOT!

It does say that "all factors" must be considered. In the past, it said in a publication (564) that ordinarily mutual funds from different companies are usually not substantially identical. That pub was combined with 550, which has more general language that says that substitutes "securities" for "mutual funds". ETFs and funds are securities.

I happily and confidently sold VOO for a loss and bought IVV. I do not believe that these two S&P 500 ETFs are substantially identical.
They track the same index. How are they not substantially identical? If those two are not substantially identical, what is?

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Earl Lemongrab
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Re: Tax Loss Harvesting Question

Post by Earl Lemongrab » Tue Apr 16, 2019 4:46 pm

Triple digit golfer wrote:
Tue Apr 16, 2019 3:57 pm
They track the same index. How are they not substantially identical? If those two are not substantially identical, what is?
The different share classes of Vanguard funds would be, in my opinion, substantially identical. Have you read over the publications and the few examples they do give? It mentions things like preferred stocks convertible to common.

Do you not believe that the company that provides the fund or ETF makes a difference? Remember, it's not "very similar", it's "sustantially identical". Do you think the ETFs from different companies are interchangable?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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