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I recently sold some short term VTI shares at a loss (specific shares, not FIFO). With the proceeds, I purchased SCHB. My brokerage firm has adjusted my cost basis on the VTI shares due to a wash sale.

I read this question about wash sale/ETFs and contend that these two funds are not "substantially identical" for a few reasons -

  • VTI is a total market fund, SCHB is a broad market fund. (see below)
  • VTI has ~3800 stocks in it's holdings, SCHB - just under 2000.

Is this decision done by the brokerage, and is it subjective? More importantly to me - is can I / how do I dispute this with my brokerage? Is there a chance that the IRS won't see it my way?

These are the fund summaries from my brokerage's site. They certainly seem different to me.

VTI

The Fund seeks to track the performance of a benchmark index that measures the investment return of the overall stock market. The Fund employs a "passive management" approach designed to track the performance of the CRSP US Total Market Index.

SCHB

The Fund seeks diversified exposure across large- and small-cap U.S. stocks. It seeks investment results that track performance, before fees and expenses, of the approximately 2,500-stock Dow Jones U.S. Broad Stock Market Index.

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  • Those fund summaries sure look similar. ;-)
    – Craig W
    Sep 17, 2015 at 18:29
  • Darn - sloppy copy/paste! Thanks for pointing that out.
    – InbetweenWeekends
    Sep 17, 2015 at 18:31
  • A hollow voice whispered form 8275-r. In this case you would be using it to signal willingness to bring legal challenge.
    – Joshua
    Mar 28, 2018 at 15:28

1 Answer 1

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The IRS has been particularly vague about the "substantially identical" investment part of the wash rule. Many brokers, Schwab for instance, say that only identical CUSIPs (exactly the same ETF) matter for the wash rule in their internal calculations, but warn that the IRS might consider two ETFs over the same index to be substantially identical. In your case, the broker has chosen to call these a wash despite even having different underlying indices.

Talking to the broker is the first step as they will report it to the IRS. Though technically you have the final say in your taxes about the cost basis, discussing this with the IRS could be rather painful.

First though it is probably worth checking with your broker about exactly what happened. There are other wash sale triggers that frequently trip people up that may have been in play here.

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  • 1
    Not related to wash sales, but I've had brokerages report incorrect or misleading information. I filed my taxes with the correct information. The IRS sent me a letter and all I had to do was send in my documentation and explanation. OTOH, something similar happened to my parents when I was a kid, and the IRS didn't accept their explanation, and it cost them many times the originally disputed amount by the time they paid all the fees and interest.
    – stannius
    Sep 30, 2015 at 15:59

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