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Tax loss harvesting question

Mgconslts
in Fund Discussions
Has anyone here ever sold a fund and taken a loss in a non retirement account, temporarily parked it in a different fund to harvest a loss for tax purposes and then moved it back into the original fund? How many days did you wait to repurchase the original fund to avoid the wash sale rules? I have read about it being 30 days in some places such as the link below and 60 days for stocks. I am considering doing this in a transfer from DBLNX to DODIX. I read this https://www.bogleheads.org/wiki/Wash_sale Does anyone think the IRS could rule DBLNX and DODIX are substantially identical funds (both intermediate bond funds) and thus tax harvesting cannot be done with them? Thx

Comments

  • Mgconslts
    This may help get my question answered...

    https://finance.zacks.com/substantially-identical-mutual-funds-5850.html Avoiding a Wash Sale
    An article by Lee C. McGowan, CFP in the Journal for Financial Planning gives some guidelines concerning replacement mutual funds and the substantially equal restriction. The article suggest that the following transactions should not trigger a wash sale: Selling an index fund and buying an actively managed fund. Selling an actively managed fund and buying an index fund. Selling an index fund and buying an index fund tracking a different stock index. Selling an actively managed fund and buying a fund managed by a different fund company and manager.
  • TedTed
    @Mgconslts: What is DBLNX ?
    Regards,
    Ted
  • Mgconslts
    Doubleline Total Return Bond Fund.
  • msf
    The IRS has never said what funds might constitute substantially identically securities (and thus trigger a wash sale).

    I'd wager it's fair to say that the vast majority of people ("experts" if you wish) agree with McGowan that swapping an actively managed fund for an index fund or different actively managed fund would be safe. There's less of a consensus on swapping index funds.

    Even swaps of index funds tracking the same index might not trigger a wash sale. (IMHO it's not worth the risk.) Different funds may use different sampling techniques, resulting in different market exposures and thus not constitute substantially identical securities. This may be especially true with bond funds or with funds having a bit of "wiggle room" in how they track their indexes.

    Coming from the opposite direction, one might regard two index funds that track different indexes of the same market segment as substantially identical (since the investment exposure could be viewed as substantially identical). For example, IWV (R3K - 97% market coverage) vs. WINDX (W5K).

    The 30/60 day rule is that you have a wash sale if you purchase a substantially identical security within 30 days of the loss sale. That's 30 days before the sale to 30 days after the sale, inclusive. So if you repurchase within that 61 day window, you've got a wash sale.

    It's always puzzled me why fund investors would think about repurchasing the same fund 31 days after having put the proceeds into a substitute fund. If you put the the money in the substitute fund (here, DODIX), you do it in anticipation of the fund appreciating. So after taking a loss, you're going to turn around right away and recognize a short term gain? What's the point in that?

    If you're figuring that you're not going to make (much) money on the replacement fund, then why invest in it for 31 days? You don't expect to gain, so you're just putting your money at risk.

    I'd rather buy a replacement fund that I like and want to keep.
  • TedTed
    @Mgconslts: DLTNX is Doubleline Total Return Bond Fund, not DBLNX . msf is correct, why would think about repurchasing the same fund 31 days after having put the proceeds into a substitute fund?
    Regards,
    Ted :)
  • Mgconslts
    Less volatile bucket of mine. Almost like the cash bucket but with some return.
  • Mgconslts
    Doubleline Total Return has done well on a total return basis with limited volatility over the years.
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