SPDR S&P 500 ETF Trust
Price
$773.17
YTD
+12.85%
Expense
0.09%
Yield
1.25%
🇺🇸 United States
Best ETFs for Tax-Loss Harvesting
Optimal ETF pairs for tax-loss harvesting strategies that maintain market exposure while capturing tax benefits.
Tax-Loss Harvesting with ETFs
Tax-loss harvesting is a strategy that involves selling ETFs at a loss to offset capital gains in other investments, reducing your current tax bill while maintaining your desired market exposure. ETFs are ideal for this strategy because multiple funds track similar (but not identical) indices, allowing you to swap between them without significantly changing your portfolio.
How Tax-Loss Harvesting Works
Sell an ETF showing a loss and immediately buy a similar (but not "substantially identical") ETF to maintain market exposure. The realized loss offsets gains elsewhere in your portfolio, and you can deduct up to $3,000 of excess losses against ordinary income annually. Unused losses carry forward indefinitely.
Avoiding the Wash-Sale Rule
The IRS wash-sale rule prevents you from repurchasing a "substantially identical" security within 30 days before or after the sale. Swapping between similar-but-different ETFs (e.g., VOO to IVV, or VTI to ITOT) generally satisfies this rule because they track different indices, though guidance on ETF wash sales remains somewhat ambiguous.
ETF Swap Pairs for Tax-Loss Harvesting
Effective swap pairs include: VOO ↔ IVV ↔ SPLG (S&P 500), VTI ↔ ITOT ↔ SCHB (total market), VXUS ↔ IXUS (international), BND ↔ AGG (bonds). Each pair provides nearly identical exposure while using different underlying indices to avoid wash-sale issues.
🏆 Winner — #1 pick
Vanguard S&P 500 ETF
Price
$710.72
YTD
+12.78%
Expense
0.03%
Yield
1.28%
iShares Core S&P 500 ETF
Price
$777.13
YTD
+16.20%
Expense
0.03%
Yield
1.32%
Vanguard Total Stock Market ETF
Price
$380.93
YTD
+11.92%
Expense
0.03%
Yield
1.32%
iShares Core S&P Total U.S. Stock Market ETF
Price
$169.17
YTD
—
Expense
0.03%
Yield
—
Schwab U.S. Broad Market ETF
Price
$29.82
YTD
—
Expense
0.03%
Yield
—
Frequently asked questions
What is tax-loss harvesting with ETFs?
Tax-loss harvesting involves selling ETFs at a loss to generate tax deductions, then immediately buying similar ETFs to maintain market exposure. This strategy can save 0.5-1.5% annually in taxes without meaningfully changing your portfolio.
Is tax-loss harvesting worth it?
For investors in higher tax brackets (24%+ federal), tax-loss harvesting can be very valuable. On a $500,000 portfolio, harvesting $20,000 in losses could save $4,000-6,000 in taxes. The benefit compounds as deferred taxes remain invested and grow.
Which ETFs are best for tax-loss harvesting?
Use ETF pairs that track different but similar indices: VOO/IVV (S&P 500), VTI/ITOT (total market), VXUS/IXUS (international), BND/AGG (bonds). Having 2-3 alternatives for each asset class allows flexibility in harvesting losses throughout the year.
Can I tax-loss harvest in retirement accounts?
No, tax-loss harvesting only works in taxable brokerage accounts. IRAs and 401(k)s are already tax-deferred, so realized losses have no tax benefit. Focus this strategy exclusively on your taxable investment accounts.
How often should I tax-loss harvest?
Review opportunities quarterly or after significant market drops (5%+ decline). Automated services check daily, but quarterly manual review captures most of the benefit. Harvesting losses during market corrections provides the largest tax savings.