To maintain exposure to the sector, the investor could buy an ETF indexed to financial or bank stocks, Iachini said on Friday’s call. ETFs are a “good fit” for the strategy if investors don’t want to be out of the market for a month.
Some financial advisors use tax-loss harvesting strategies featuring ETFs that track the same sector but are pegged to different indexes.
The IRS hasn’t provided a hard definition of “substantially identical,” and investors should consult a tax advisor about the wash-sale rule.
Also, investors need to consider any ETF commissions or other trading costs associated with the strategy.
Finally, Schwab’s Spiegelman said not to lose sight of the overall investment plan and let the “tax tail” wag the dog. “Don’t upset the long-term investment plan or asset allocation just to get a tax break,” he said.
“ETFs have made tax loss harvesting a lot simpler than it used to be,” said Charles Zhang of Zhang Financial in a recent Reuters report. “It’s not that hard to find one that’s a good stand-in.”