SCHD Tax-Loss Harvesting Calculator

No, the IRS wash sale rule applies across all accounts you own, including IRAs and other retirement accounts. If you sell SCHD at a loss in your taxable account and then purchase SCHD within 30 days before or after that sale in your IRA or any other account you control, it would still trigger the wash sale rule, and the tax loss would be disallowed.

This cross-account application of the wash sale rule is specifically addressed in IRS Publication 550, which states that the rule applies to securities purchased by your spouse or a corporation you control, as well as in your IRA accounts. To properly harvest the tax loss, you need to wait more than 30 days before repurchasing SCHD in any account, or alternatively, purchase a different ETF that is not considered substantially identical to SCHD.

Reinvesting dividends into SCHD shares within the 30-day period before or after selling SCHD at a loss can trigger a partial wash sale. The IRS considers dividend reinvestment as a purchase of additional shares, which would fall under the wash sale rule.

For example, if you sell 100 shares of SCHD at a loss and have 2 shares automatically purchased through dividend reinvestment within the 30-day window, the loss on 2 shares would be disallowed under the wash sale rule, while the loss on the remaining 98 shares would still be deductible.

To avoid this issue, consider temporarily disabling dividend reinvestment for SCHD during the period when you're planning to harvest losses. You can either take the dividends as cash or direct them to a different investment that isn't substantially identical to SCHD.

Most tax professionals and financial advisors agree that VYM is likely not considered "substantially identical" to SCHD for the purposes of the wash sale rule. The two ETFs have significant differences that should allow them to be treated as distinct securities:

• VYM tracks the FTSE High Dividend Yield Index while SCHD tracks the Dow Jones U.S. Dividend 100 Index
• VYM holds approximately 400+ stocks versus SCHD's ~100 holdings
• The selection criteria and weighting methodologies differ between the two ETFs
• The sector allocations and specific holdings have meaningful differences

While the IRS has not provided specific guidance on ETFs and the definition of "substantially identical" securities, these differences generally make VYM a safe alternative to use during a tax-loss harvesting strategy involving SCHD. However, this is not tax advice, and investors should consult with a qualified tax professional for their specific situation.

The impact of tax-loss harvesting on your after-tax returns depends on several factors, including your tax bracket, the size of your realized losses, and how effectively you reinvest the proceeds. Research and industry studies suggest that systematic tax-loss harvesting can add between 0.2% to 1.0% in annual after-tax returns over the long term.

For example, if you have a $10,000 investment in SCHD that has declined to $8,000, harvesting the $2,000 loss could provide the following benefits:

• If you're in the 15% capital gains tax bracket: $300 in tax savings
• If you're in the 20% capital gains tax bracket with an additional 3.8% NIIT: $476 in tax savings
• Plus potential state tax savings depending on your location

When expressed as a percentage of your current investment value ($8,000), these savings represent an immediate tax alpha of 3.75% to 5.95%. While this benefit is a one-time occurrence for a specific tax year, implementing this strategy consistently during market downturns can significantly enhance long-term after-tax returns, especially when the tax savings are reinvested in the market.

Yes, using specific lot identification when selling SCHD shares can significantly enhance your tax-loss harvesting strategy. This method allows you to select exactly which shares you're selling, enabling you to prioritize lots with the highest cost basis relative to the current market price, thus maximizing your harvested losses.

For example, if you've purchased SCHD at different price points over time:

• Lot 1: 50 shares at $70 per share ($3,500)
• Lot 2: 50 shares at $80 per share ($4,000)
• Lot 3: 50 shares at $60 per share ($3,000)

If SCHD is currently trading at $65, you could specifically sell Lot 2 to realize a $750 loss while keeping Lots 1 and 3 (which have minimal loss or a gain).

Most major brokerages offer specific lot identification options in their trading platforms. To use this strategy effectively, you should notify your broker which specific shares you want to sell before the settlement date, and maintain records of your transactions for tax purposes. Without specific identification, the default method (often FIFO - First In, First Out) might not optimize your tax benefits.