ETFs Provide Market Exposure While Cutting Your Tax Bill
In addition to helping minimize unexpected capital gains, you can use ETFs to pursue
other tax strategies, including ways to capture the tax benefits of losses in specific
stocks without triggering the IRS's "wash sale" rule. This rule maintains that a
loss cannot be claimed for tax purposes if a sold security is purchased within 30
calendar days.
Here are two examples:
Example 1: Use ETFs to Maintain Broad Market Exposure
By selling individual stocks at a loss and simultaneously purchasing an ETF that
mirrors a market index of which they are a part, you can continue to participate
in potential market gains without triggering the
washed sale rule.
Example 2: Use ETFs to Participate in Specific Market Sectors
By selling specific stocks at a loss and simultaneously buying an ETF that invests
in that company's market sector, you can benefit from positive industry-wide trends
without triggering the washed
sale rule.