Tax Loss Harvesting

[wabmester]

It's that time of year again. This is when I try to get a handle on my tax liability and try to tweak it downward.

I plan to sell a couple of dogs with unrealized losses to offset some realized capital gains. I've got a question about the wash rule. Does the wash rule kick in if I sell, say, a small-cap fund and then use the proceeds to buy a different small-cap fund, or does it only apply if the securities are identical?

 

[youbet]

Does the wash rule kick in if I sell, say, a small-cap fund and then use the proceeds to buy a different small-cap fund,

No

or does it only apply if the securities are identical?

Yes

 

[LOL!]

No, I even think you can sell IWM and buy IWN because, while there is overlap in the stocks they own, they are not "substantially identical".

One can even sell VFINX and buy SPY or vice versa.

But may I ask why you have a loss in a small cap fund? I want to avoid that particular fund because small caps have done rather well.

 

[astromeria]

My problem is that I rarely have losses these days ('course that could change if the bears are right this time). Nice problem

 

[wabmester]

One can even sell VFINX and buy SPY or vice versa.

Really? I would have expected close to 100% overlap would trigger "substantially identical."

But may I ask why you have a loss in a small cap fund? I want to avoid that particular fund because small caps have done rather well.

It was just used for example. I'm actually kind of bummed that I have almost no unrealized losses this year. Only some small capital losses in two bond funds.

 

[REWahoo]

My problem is that I rarely have losses these days...

...I'm actually kind of bummed that I have almost no unrealized losses this year. Only some small capital losses in two bond funds.

If these two posts don't mark the start of a downturn, then you don't understand the definition of the work jinx.

 

[Nords]

Really? I would have expected close to 100% overlap would trigger "substantially identical."

C'mon, you've been a Windows user for years, right? You should know better than to apply logic to IRS interpretations.

You may be right about the overlap, but there are very few instances of the IRS challenging investor's wash sales. It appears to be perfectly acceptable to sell a mutual fund and invest in an ETF of the same general class. So for now you rate what you get away with, but I think the best guidance is to not be greedy. If you're not comfortable doing something then you probably shouldn't do it.

 

[FinanceDude]

No, I even think you can sell IWM and buy IWN because, while there is overlap in the stocks they own, they are not "substantially identical".

One can even sell VFINX and buy SPY or vice versa.

But may I ask why you have a loss in a small cap fund? I want to avoid that particular fund because small caps have done rather well.

There's a waiting period to consider...........