Now we know the law has some grey areas and it’ certainly doesn’t seem intended but… can you tax harvest VOO for SPY? Multiple sources say yes. And others say no.
- Researching for a YouTube video
Hey @Funancialism!
So I think what you’re asking is can you sell VOO at a loss then immediately buy SPY without triggering the “wash sale” rule and thus eliminating any benefit of the tax loss harvesting.
The SEC defines a wash sale as: “…when you sell or trade securities at a loss and within 30 days before or after the sale you buy substantially identical securities”
So basically, if VOO and SPY are “substantially identical” then you can’t claim that tax break on the loss.
So ARE THEY substantially identical. That’s kind of up to the IRS when they come and audit you for this. From what I’ve read, there are “no clear guidelines” on exactly what counts. In my opinion, you’d have a hard time arguing that two ETFs that track the same index fund AREN’T substantially identical. But maybe if you swapped VOO (an S&P 500 index fund) for something like ITOT (an S&P 1500 index fund) you could certainly make an argument that the addition of the 1,000 extra companies in the index make it far from “substantially identical”. Although, 500 of those stocks contained within certainly are. So who knows.
At any rate, pragmatically speaking, if we’re talking a small tax break and a small amount of money, I’d use your best judgement and I suspect it’s unlikely the IRS is gonna hunt you down for this. If it’s a medium or bigger amount of money, it’s definitely in “ask your CPA” territory since this is just a tax break after all.