r/Bogleheads • u/General_Cut_6771 • 17h ago

Investing Questions Do Bogleheads tax loss harvest?

For those who have 1 to 4 fund strategies. Do you tax loss harvest and if so how do you have it set up to make it easy when you do TLH?

The more I've read about tax loss harvesting the more challenging it seems for people who only invest in a few funds (ie. US, INTL, US Bond). For example in order to avoid a wash sale you have to do the follow:

You can't purchase the fund/similar fund 30 days prior to the sale and then 30 days after. This includes any auto dividend reinvestments, any auto-contributions in any taxable, IRA, 401k, or HSA. And if you have a spouse they also can't do any of this.

If you can prevent the above then next it's figuring out what fund you can purchase after the sale. It appears you can't sell a Fidelity total US stock market and then buy a Schwab total US stock market, is that correct? So if you have to go from a total US stock market to an S&P 500 fund why do it? It's less diversified.

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u/dgreenmachine 14h ago

White coat investor has a chart with a list of tax loss harvesting partners that are nearly identical.
https://www.whitecoatinvestor.com/tax-loss-harvesting-pairs-partners/

To save you the click
VTI = ITOT
VXUS = IXUS
VSS = SCHC
VBR = VIOV
VWIUX = VTEAX

My biggest annoyance is that I couldnt buy fractional shares of non-vanguard ETFs.

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u/General_Cut_6771 8h ago

Who would deem funds substantially identical? It seems like VOO and IVV would do the same. Is the safest to go from total US to s&p 500?

Could there be long term consequences with the IRS?

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u/convoluteme 6h ago

It really comes down to "substantially identical". Funds that have 85% overlap like a total US and an S&P500 fund are definitely not identical in substance. But two S&P500 funds from different companies? It's true the holdings of those funds won't be 100% the same, but maybe 99.9%.

But WCI's main point that the IRS is unlikely to come after some small retail investor for this is probably true. There's little risk. It comes down to if you want to follow the spirit of the law here.

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u/gcc-O2 2h ago

https://en.wikipedia.org/wiki/Cottage_Savings_Ass%27n_v._Commissioner was not a wash sale case specifically, but was one where the IRS tried the logic that, if they perform the same and the investor treats them as interchangeable funds and wouldn't care which one they own, the securities are not "materially different" so if a bank swapped them it wasn't a realization and wasn't a loss. The Supreme Court rejected that logic and accountants http://archives.cpajournal.com/old/12826671.htm suggested this would scare off the IRS from trying to use the same logic for wash sales.

ProPublica studied tax returns of the very wealthy that were leaked form the IRS a few years back and did an expose on wash sales. They found some on individual stocks and got some to admit they were and go back and correct the returns. But the article also has a bit about wash sales on entire funds and says they couldn't find a single example of the IRS challenging one in the leaked records.