Wash Sale Rules

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  • #15034
    Hootz
    Participant

    I have a few taxable accounts with Vanguard. In one of them, I own Vanguard Limited-Term Tax-Exempt Bond Fund. I am thinking of starting a new position in the same fund but in a different account. One account is for buy and hold with monthly dividends reinvested and the other will be for tactical allocation so there will some trading.

    Will one account have any effect on the other regarding wash sale rules?

    Thanks.

    #15037
    Kaye Thomas
    Moderator

    The rules require you to apply the wash sale rule across all accounts you own. The same would be true even if you held accounts at different fund companies or brokers.

    Vanguard, on the other hand, is required to apply the wash sale rule on an account-by-account basis. You may have cross-account wash sales that are not flagged as wash sales in the reports you receive from Vanguard but are nevertheless required to be reported as wash sales on your tax return.

    As a practical matter, unintentional wash sales that occur as a result of dividend reinvestment are unlikely to have more than a trivial effect on your tax liability, and unlikely to attract the attention of the IRS if unreported. To avoid any issue, though, you might consider eliminating automatic dividend reinvestment for your holding in this mutual fund. You can manually reinvest the dividends from time to time, avoiding purchases during periods when they would trigger wash sales.

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