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ETFs that are "close" but not "wash sale close"
Old 11-18-2007, 09:42 AM   #1
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ETFs that are "close" but not "wash sale close"

Well, we're getting to the time of year when some of us who have been DCA'ing into ETFs have gotten burned by the market correction of the last couple of months. Its time to do some tax loss harvesting...and investing in closely equivalent securities, but with an eye to avoiding wash-sale rules.

Any suggestions on locating alternate ETFs which one could switch some current holdings into, but not close enough to get in trouble with respect to the wash sale rules...I know that SPY <--> IVV won't fly (as one example) but perhaps an S&P midcap fund would be OK? I also need exchange candidates for US small cap and microcap ETFs.

Does anybody know the exact rules on selecting equivalents? I am fairly sure that owning different ETFs that own the same underlying index is not a differing investment, but how different do they have to be? R^2 test? % holdings test?

Of course given how the market's been doing lately, I'm probably going to be best off spending 31 days in cash!

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Old 11-18-2007, 10:08 AM   #2
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SPY <-> VTI, IYY, or VV will work.
I think you can exchange the microcap ETFs with impunity since they hold very different sets of stocks.

Some would argue that even S&P500 etf's can be exchanged because they have different expense ratios and probably do not hold all 500 issues and certainly not in the same proportions. But I see no reason to be the IRS test case.
Look at for more help. The term "substantially identical" is open to debate and has not been tested in court for these ETFs. See wash sales at Fairmark Press Tax Guide for Investors
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