Are Fidelity Spartan 500 Index (FUSEX) and Vanguard S&P 500 ETF (VOO) substantially identical?
One might argue so, because they are offered by two different companies, set up with different legal structures, and have different fees. If this argument holds, it will be great news because an investor can sell one index fund with a loss, and buy another very similar index fund to keep such a core holding in one's investment portfolio.
Unfortunately, the answer is no. Why? While IRS has not clearly defined what is "substantially identical", there is another part of the tax law that clearly stipulates what is "substantially similar" - if two securities have more than a 70% overlap in weighted holdings, then they are substantially similar.
In order to prevail in front of IRS, if you can prove two securities are not substantially similar, then you can successfully argue they are not substantially identical.
With the above understanding, we will discuss a few tax loss harvesting strategies using ETFs in next blog post.