I have some SPY for many years and it has gone up since then.
I noticed that the fees are much higher than the VOO which is also an ETF for the SP500.
Both ETF's hold the same underlying SP500 stocks.
So, can I sell my SPY and then buy the equivalent VOO?
I found the following keywords but no answers:
1) substantially identical
2) wash sale
3) creation redemption (using etf arbitrage, in theory one could redeem and then create rather than buy and sell)
Generally, if you sell an asset in a non-tax-sheltered account for more than you paid for it, that's a capital gain, and you have to pay capital gains tax. There are exceptions, but I don't believe any exceptions apply here.
The wash sale rule says that if you sell a security at a loss and buy a "substantially identical" security shortly before or after, you may not be able to count that as a capital loss. However, the rule only applies to losses, not gains.
The creation and redemption processes are how certain institutional investors barter stock for ETF shares and vice versa. Only certain institutions are allowed to do this; individual investors can't create and redeem shares, and have to buy and sell them instead. Furthermore, creation and redemption are only done in large units; currently, one creation unit of SPY consists of stock worth about $12,000,000.
So, can I sell my SPY and then buy the equivalent VOO?
Absolutely - nothing prevents you from doing so. And if you have a gain then wash sale rules are irrelevant. You would then owe capital gains tax on the gain in value. But the cost basis for VOO would be higher, so your gains on that fund would be lower. So your choice is to pay, say $1,000 in tax now (completely making number up) and $500 in tax when you sell VOO rather then paying $1,500 in the future if you kept SPY and sold it later. You can decide if that cash flow difference is worth the extra return from the difference in fees between the funds.
Even if it were sold at a loss, you could still do it, you just may not be able to deduct the loss as an investment loss until you sell the VOO. Due to wash sale rules, the cost basis would be carried forward, so the loss could not be claimed until you sold VOO.
An actual conversion to a different holding would not be a taxable event. For example VFIAX to VOO, if converted by the fund provider. (I'm using Vanguard funds as an example both because one appeared in the question and because they are somewhat unique in making ETFs a share class of their mutual fund. They specifically support this non-taxable conversion.)
You are talking about a sale on the secondary market and replacement by purchasing an equivalent fund. That is not a conversion in the eyes of the IRS.
It's not possible for a small investor to treat an exchange between ETF shares from different providers as a conversion. For an authorized participant, things are actually different. They can redeem ETF blocks for shares of the underlying securities, and then bundle those into a creation unit of the other ETF. Because the underlying securities are exchanged not bought or sold, the main event isn't taxable (which is what gives ETF their tax advantage over mutual funds). Accounting for any difference in holdings between the two funds would still require purchase and/or sale with all the tax ramifications thereof.
Of your three ideas, "substantially identical" is only relevant to wash sales, "wash sales" don't affect taxation when there is a profit, and the creation/redemption idea is perfectly valid as explained above but does not apply to you because
these blocks/creation units are quite large, and
these actions are only available to designated "authorized participants"
