Turn portfolio losses into tax savings. Learn how to harvest losses, avoid wash sale pitfalls, and keep more of your returns.
Tax loss harvesting converts paper losses into real tax savings. You sell a losing position, claim the deduction, and immediately buy a similar fund to stay invested. Here is the process:
The IRS wash sale rule (Section 1091) is the most important constraint in tax loss harvesting. It prevents you from claiming a loss if you buy a "substantially identical" security within 30 days before or after the sale.
Selling VTI at a loss and buying VTI back within 30 days. Selling VOO at a loss then buying it in your IRA. Selling an S&P 500 ETF and buying an S&P 500 mutual fund tracking the same index. Reinvesting dividends in the same fund during the window.
Selling VTI and buying ITOT (different provider, different index). Selling VOO and buying VTI (S&P 500 vs Total Market). Waiting 31+ days to rebuy the original fund. Selling at a gain (wash sale only applies to losses).
The loss is disallowed for that tax year. The disallowed loss gets added to the cost basis of the replacement shares. The holding period carries over. The loss is deferred, not permanently lost — it reduces your gain when you eventually sell.
These fund swaps let you harvest losses while maintaining nearly identical market exposure. The key is using funds that track different (but similar) indexes to avoid the wash sale rule.
| Category | Sell (Primary) | Buy (Replacement) | Primary ER | Replacement ER | Index Difference |
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