Avoid Wash Sales Preserve Capital Losses Deductions
Avoiding creating a wash sale is easy. Wait at least 30 days before repurchasing the same or substantially identical stock or securities. Of course, that isn't always practical.
However, there is a way to generate capital losses and re-purchase an investment without creating a wash sale in some cases.
Avoid Wash Sale Example #1:
Sell mutual fund shares and buy different mutual fund shares with same objective. For example, an investor could sell American Century Small Cap Value Fund (ASVIX) for a loss and then purchase Royce Opportunity Investment Fund (RYPNX) on the same day without generating a wash sale. The investments are certainly not the same, however, an investor will benefit from an upward move in small cap stocks in either fund.
Avoid Wash Sale Example #2:
Sell ETFs or Index Funds and buy shares in an ETF or Index fund that tracks a slightly different index. Avoid the temptation to try swapping around ETFs or Index Funds that use the same index. This could be trouble. However, selling a fund that tracks the S&P500 US Stock Index to purchase an ETF that tracks the S&P100 stock index will not create a wash sale.
Avoid Wash Sale Example #3:
Sell individual stocks and purchase the index that tracks the same sector. The value of individual stock selection comes from choosing winning companies. However, over a period of just 30 days, most individual stocks will not differ greatly in performance from their overall market sector, especially if there is no stock related news or reports. - This strategy should not be used during earnings season when stock performance can differ significantly from market performance.
For example, sell shares of Boeing stock and purchase an equal dollar amount of Dow Jones U.S. Aerospace & Defense Index ETF (ITA). Wait 31 days then sale ITA and purchase Boeing. If there is a loss on ITA during that time, you get an additional short-term loss to offset short-term gains with. If the market, or just that sector improve, you will not lose out on the move. (However, this will generate short-term gains. As with all investment strategies, the pros and cons must be weighed.)