How to Tax-Loss Harvest with Vanguard

When it comes to investing, small optimizations can make a big difference. For example, if you had a $100,000 portfolio, boosting your returns by just 0.1% over 30 years would mean earning an extra $8,221 in returns. Tax-loss harvesting in your taxable brokerage account (if, for instance, you are with Vanguard, Fidelity, or Schwab) is one way to optimize your investments. It’s an investing/tax reduction strategy that relies on selling losing positions to take advantage of a tax deduction. That means saving money today, giving you the chance to invest even more in the market.

Today, let's talk about how to tax-loss harvest at Vanguard, something that could be a good idea for you given the current volatility of the market. It might NOT be a good idea for you, though. And there are certainly plenty of ways to screw it up.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a process that involves selling poorly performing investments at a loss and then immediately investing the proceeds in a relatively similar but non-identical investment. According to IRS rules, you can report investment losses on your tax return and use those losses to offset gains from the sale of other investments and from ordinary income while still staying in the market with very similar assets.

Why Tax-Loss Harvest?

When you sell at a loss, you can report that loss to the IRS on your taxes, using the loss to offset gains from other investments or a portion ($3,000 per year) of your ordinary income for income tax purposes. For example, if you sell one investment for a loss of $13,000 and sell another at a $10,000 profit, you can report a net $0 profit from investments and deduct up to $3,000 from your regular income, a big savings when you’re in a high tax bracket. In a typical physician tax bracket, that's worth about $1,000 in cold hard cash. If you have more losses than $3,000, the loss can be carried over and applied to your future tax bills.

More information here:

Is Tax-Loss Harvesting Worth It?

The Case Against Tax-Loss Harvesting

Tax-Loss Harvesting with Fidelity

13 Ways to Screw Up Tax-Loss Harvesting

Avoid Wash Sales

The most important thing to keep in mind with tax-loss harvesting is that you need to avoid a wash sale. A wash sale happens when you sell an investment for a loss and then buy the same or a “substantially identical” security within 30 days of the sale in that same brokerage account, any other brokerage account, or any IRA. If you make a wash sale, you don’t get to report the loss on your tax return, meaning you miss out on the opportunity to reap the tax benefits of tax-loss harvesting.

Instead, you should sell your losing position and buy one that’s similar but not identical. For example, if you sold shares in the Vanguard 500 Index Fund (VFIAX), which tracks the S&P 500, and bought shares in the Total Stock Market Fund (VTSAX), which tracks the whole American stock market but has a heavy weighting of stocks in the S&P 500, you wouldn’t trigger a wash sale because the funds are not “substantially identical.”

While this isn't particularly watched by the IRS (basically, if the brokerage doesn't report it as a wash sale, nobody seems to care), it is the law, and you should follow it when tax-loss harvesting. “Substantially identical” has never been defined by the IRS, and personally, I think swapping one total stock market fund from two different companies for another is just fine. I'm still waiting (for at least a decade or two) for someone to say the IRS told them differently.

More information here:

Tax-Loss Harvesting Pairs and Partners

How I Tax-Loss Harvest

In June 2018, when I originally wrote this post, stocks dropped for about six days straight. If you look carefully at the chart, there were similar episodes—at least for international stocks—in February, March, and May as well. If you had purchased an international stock index fund at any point during 2018, chances were very good by June 19 that you had a loss you could tax-loss harvest, especially if you had not already done it earlier in the year. (The really astute investor probably had already done this in February, March, or May.)

So, I sent a Tweet out to my Twitter followers:

. . . and linked to a blog post I had on tax-loss harvesting (TLHing). I thought it'd be a good idea to document the process of how to tax-loss harvest with Vanguard. Given stock market volatility in early 2025, changes in the IT interface at Vanguard, and the now common use of ETFs, we have also updated this post with even more screenshots.

How to Tax-Loss Harvest at Vanguard

If you’re ready to start tax-loss harvesting with Vanguard, follow these steps. Keep in mind that Vanguard's website has changed since I originally wrote this post. WCI contributor TJ Porter went through the process in 2025 and provided us with updated screenshots, but we still have some original screenshots from 2018 further below in this post. We also have a section on doing this with ETFs from screenshots I just took last week (April 2025) while tax-loss harvesting.

#1 Find Positions with a Loss

Open your brokerage account and navigate to the holdings page. Then, use the dropdown box to show “unrealized gains/losses.”

You’ll be given a list of all of your positions and the short- and long-term gains or losses. Porter didn't have much in the way of losses to harvest, but this is what the screen will look like.

Even if you have an overall gain, there still may be opportunities for tax-loss harvesting. Click the arrow next to “Show lot details,” and it will display every lot of shares you’ve purchased and the individual gain or loss from that lot.

Despite the overall gain, he had a few lots of Disney stock that had long-term capital losses. He could sell those lots to book the loss and then use that money to buy shares in something else.

One thing that’s important to note is that Vanguard (and most brokerages) offer three cost basis methods:

First In, First Out Average Cost Basis Specific Identification

As a general rule, the best one is Specific Identification, and the worst one is First In, First Out. That's because when you go to tax-loss harvest, you usually want to sell the LAST shares you bought—not the first ones—as the last ones generally have the biggest loss to harvest. Specific ID will let you view the price of individual lots of shares you’ve purchased to lots that are currently at a loss that can be sold for tax-loss harvesting. To do this, you can click the “View/Change cost basis method.” It may take a day for the lot information to become available.

#2 Sell the Losing Position

Once you’ve identified lots to sell for a loss, you can click the “Transact” button. It will bring you to a page where you can choose to buy or sell shares. You’ll want to choose “Sell.”

On the next page, under Cost Basis, select “Specific identification” and then click the “Select Shares” button.

You’ll be presented with a page that lets you select which shares to sell. Choose the ones with a loss.

#3 Buy a New Investment

Once you’ve sold the shares, you’ve generated your tax loss. You can now reinvest the money in another investment as long as it isn’t substantially identical. To get started, go back to your account homepage and click “Transact” and select “Buy & sell.”

On the next page, you can select the type of investment you’d like to buy, enter the ticker symbol, the amount to buy, and the type of order. Once you submit the order, Vanguard will execute the trade and add the new investment to your portfolio.

Tax-Loss Harvesting with Traditional Mutual Funds

Vanguard is a brokerage that’s very focused on mutual funds. While the above process will work for tax-loss harvesting for mutual funds, you can make the process easier using the “Exchange” option.

Open the details page for the mutual fund you want to tax-loss harvest by clicking on its name on your holdings page. Then, click the “Exchange” button.

Next, you’ll have to select the shares you wish to sell. After that, click the button to select a fund to buy.

You’ll be presented with a list of funds you have already invested in to exchange shares. You can also click “Buy a new fund” and enter the ticker or name of any fund offered by Vanguard. Keep in mind that, if selecting a new fund, you’ll need to meet any minimum investment requirements. Remember, the goal with tax-loss harvesting is to choose something that is highly correlated with the original fund, while not, in the words of the IRS, substantially identical.

Once you’ve selected the new fund, click the button to submit the order. Vanguard will sell the shares in one fund and buy shares in the new one. That will generate the tax loss while immediately reinvesting your money. I have encountered at least one WCIer who ran into a problem at Vanguard because they chose to buy and sell the funds in separate transactions one day apart rather than exchange. Exchanging seems to be more reliable, at least at Vanguard. But I had a separate WCIer have the opposite problem at Fidelity while trying to exchange funds from two separate fund providers. More details of those experiences here.

You need another example of tax-loss harvesting with index funds? Here's what I did in 2018. Keep in mind that Vanguard's website looks different now, but hopefully, you'll get the point of what I was doing with these old screenshots.

As you can see in my case, our VTIAX holding (Total International Stock Market Fund) had a $5,350.52 loss at the beginning of the day. I hit “Exch” for exchange on the right side of the screen for the fund I wanted to exchange because I was going to trade one fund for another.

That took me to this screen:

It all was bought at a price higher than what it could have been sold for that day, so I chose to sell 100% of it. I was stuck with the FIFO method on the day I made the exchange, which was fine in my case. Next, I needed to choose a fund to exchange into. At Vanguard, the usual first choice for the Total International Stock Market Index Fund is the FTSE All-World ex-US Index Fund. Why is that fund such a great TLHing partner? Here's what I researched at the time.

As you can see, the performance was nearly identical YTD and over the previous five years. The expenses were identical, and they both invested in “large international blend” stocks. Clearly, the funds had a very high correlation. I should expect nearly identical performance out of them. VFWAX it is. I chose it on the next page.

After a couple of submission and confirmation pages, I had officially tax-loss harvested.

A Real-World Example of Tax-Loss Harvesting

When I wrote this post in 2018, I tax-loss harvested in my Vanguard account, and I booked an actual loss of $7.689.50 in the 30 seconds it took me to go through the TLHing process.

When tax-loss harvesting, up to $3,000 can be applied against your ordinary income, which in my case is taxed at 37% federal + 5% state, or 42%. So, a $3,000 deduction is worth $3,000 * 42% = $1,260 off my tax bill. The remaining loss is carried forward to the next year. Of course, the $3,000 loss is only good if there is $3,000 left AFTER it is applied against all of your short and long-term capital gains on Schedule D.

The bottom line is that ONLY the amount of your loss above and beyond your short-term capital gains and long-term capital gains can be applied to your ordinary income and only up to $3,000 per year with the remainder being carried forward to future years. In many people's cases, they won't know exactly how much money they saved by TLHing until they find out what their capital gains are for the year. But even if I had more than $7,689.50 in long-term capital gains distributed from my mutual funds, I would, at a minimum, have saved the taxes on those, which was at 23.6% for us. So, $7,689.50 x 23.6% = $1,815. More likely, $3,000 of it would have gone against my regular income ($1,260 off my tax bill), and $4,690 would have gone against some LTCG distributions ($1,107) for a total of $2,367 off my tax bill. It was certainly worth 30 seconds of my time.

But You're Only Deferring the Taxes!

The semi-knowledgeable critic might point out that TLHing really only defers paying taxes; it doesn't actually lower them. Let's make that critic more knowledgeable and less critical and point out why TLHing is still a good idea, particularly for me. There are three aspects to consider.

If I eventually sell these funds, I now have a lower basis in them, and, thus, a larger percentage of what I sell them for will be gain. I will still have taxes due. However, money now is worth more than money later. This is what we call the Time Value of Money. If you assign 4% per year to its value, and you defer paying those taxes for 10 years, well, 1.04^10 – 1 = a 48% gain on that money. If you saved $1,260 in taxes now and paid $1,260 in taxes later, your actual savings is $605. Sure, that's less than $1,260, but it sure beats a kick in the teeth. There is a bit of an arbitrage between tax rates. If you can come up with a $3,000 deduction against your ordinary income tax rate (let's use 42%) now and then later have to pay taxes on that $3,000 at your long-term capital gains rate (let's use 23.8%), you're saving $1,260 and paying $714, a tax savings of $546. Add that to the $605 from the time value of money over a decade, and you're back up to $1,151, awfully close to the $1,260 you knocked off your initial tax bill. The critic is not only semi-knowledgeable about the tax code, but they're semi-knowledgeable about my personal tax situation. You see, there is a very good chance I will never sell these shares. They will probably either be donated to charity (in which case I not only get the itemized tax deduction on Schedule A, but neither I nor the charity pay any long-term capital gains whatsoever) or left to my heirs (where they receive a step up in basis at death and thus no income taxes due).

The tax savings are very much real to me. Tax-loss harvesting and then flushing the additional gains out of your portfolio through charity (and death) is a very tax-efficient way to invest.

Bonus Material: Another Opportunity to Tax-Loss Harvest

A few days after I TLHed (and wrote this post) in 2018, I had the opportunity to do it again and score another $7,800 in tax losses. Both international stocks and US stocks were down for the day, and I had some big red negative numbers when I checked my basis. I sold a couple of lots of my Total Stock Market Index Funds (only two had a loss; the rest still had a gain). I exchanged into the Vanguard Large Cap Index Fund (a bit more like TSM than the 500 Index is). I also sold the FTSE Ex-US Fund that I had just purchased. I exchanged 20% into the Vanguard Emerging Markets Stock Index Fund and 80% into the Vanguard Developed Markets Index Fund.

At this point, I had booked more than $15,000 in losses to use on my 2018 tax return, which I could really use, given that we took the standard deduction that year after bunching many of our itemized deductions in December 2017. After that, I was done with tax-loss harvesting for the time being. How did I know I was done? Because when I looked at all my tax lots on the “unrealized gains/losses” tab, I saw only green. Nothing was in the red. I don't tend to tax-loss harvest so frenetically anymore, typically not doing it any more often than once every couple of months now for reasons discussed here. But it can be done every day (or even multiple times a day with ETFs) if you want.

Tax-Loss Harvesting at Vanguard with ETFs

When buying and selling ETFs, you can't use an “exchange” order. You have to put in a sell order. Then, once it executes, put in a separate buy order. Try not to wait very long between these orders either. You don't want the market to rise in between them. You'll want to use “market orders” as you can't use limit orders with specific identification, and you definitely want to specifically identify which lots you're selling. You're only trying to sell lots with losses here.

Let's get to the screenshots. In our example here, I'm selling some lots of VXUS (the Vanguard Total International Stock Market ETF) and buying a single lot of IXUS (the iShares/BlackRock Total International Stock Market ETF). The first step is to check out your cost basis. You do that at Vanguard by logging in, clicking on “Holdings,” and then clicking on “Unrealized gains/losses.”

It should look something like this.

There are four lots with losses and two more with minimal gains. It doesn't really matter all that much whether losses are short-term or long-term when it comes to how they are used on Schedule D. While there are reasons to wait until gains are long-term before selling, there is no reason to wait until a loss is long-term. I also generally look at the tax-loss harvesting partner's cost basis and purchase dates (and dividend payment dates) to make sure I'm not screwing anything up with wash sales or violating the 60-day rule for qualified dividends. Here is the same shot for the tax-loss harvesting partner, IXUS.

As you can see, there were no losses to harvest there and no recent purchases either. Next, I open up another tab, go to Vanguard.com, and click on “Balances.”

I scroll down to the account I want to tax-loss harvest in (this is your taxable account, of course; in our case, it's a trust taxable account). Click on the account to expand it. The expanded version should list all of the investments in the account and look something like this:

Click on the investment you want to sell, in this case VXUS, and then the three little dots next to transact, and click “Sell.”

That will bring you to the trade page, which will look something like this.

Note the warning from Vanguard. It's dangerous to wade into volatile markets, but that is also often the time when you can capture the largest tax losses. For reference, this transaction was done the day President Trump announced a 90-day delay in tariff implementation but a couple of hours before the announcement. When markets are volatile, the speed at which you put in the buy order after the sell order executes might really matter. You could lose more by being out of the market than you're gaining by tax-loss harvesting.

Now, it's time to put in your order. Note that I have two tabs open right now, both at Vanguard. One is on that page showing me the cost basis, and the other is showing me this trade page. You might even want a third one open on the “order status” page so you can refresh it after putting in your order to make sure it executes.

Note the little error notice on this page. In this case, I discovered that Vanguard wouldn't let me sell “partial shares.” Remember those lots with a 13-cent loss and an 88-cent gain? Those are partial share lots from prior reinvested dividends or shares that weren't liquidated after tax-loss harvesting in a previous year. I've since learned my lesson not to buy partial shares. I was wanting to clean those up, but apparently I couldn't because Vanguard doesn't let you sell partial shares until you completely exit an investment (which may very well be literally lifetimes from now in this account). So, I just decided to sell the other three tax lots with losses as well as the one with a minimal gain ($165) just to get rid of that tax lot—the total being 12,251 shares.

At first, I thought, “Hey, markets are volatile. I'll use a limit order to make sure nothing crazy happens, I'll just set the limit order far enough below current market price that it'll still execute immediately.” That's when I discovered something else.

All of the securities in this account are already set to have “Specific Identification” as their cost basis method. So, why was it asking me to choose a cost basis method? I'd never seen that before. I clicked on it and saw this.

Apparently you can only use market orders when you use Specific Identification. I canceled out, went back, and ditched my limit order idea for a simple market order, which is what I usually use with all these extremely liquid ETFs in our portfolio. The trade order now looks like this (ignore the share number, I changed that just after taking the screenshot when I decided to sell that tax lot with the small gain, too):

Notice what the button at the bottom now says. It doesn't say “Sell” or anything like that. It says, “Select Shares.” That's EXACTLY what I want to do. I only want to sell the tax lots that have losses, right? After you hit that, you see this:

Note that I've just clicked the “All” button for each of the lots I want to sell, and it added up to 12,251 shares. I hit the “Preview order” button at the bottom, and this scary-looking warning popped up.

Seems almost nonsensical. But no, I'm not trading this security twice in one day, nor am I choosing the same tax lots to do so. I just clicked “I understand” (that somebody did this once and now you feel a need to scare the rest of us out of doing it). Maybe this is an issue for day traders or something since the tax lot/cost basis screen isn't updated minute by minute throughout the day.

The next screen told me the order was submitted. Now it's “Go Time.” I want to get the subsequent buy order in as fast as I can accurately do so because I now have $681,523 out of the market sitting in cash, and I don't want the market to rapidly move upward while it is out. You can take your time with the sell order, but you need to move when it's time to put in the buy order. The next place I go is the “Order Status” page to ensure the order actually executed. If you already have that up in a third tab (it's probably best practice), you can just refresh the page on that tab, and it'll look like this:

Note the “Executed” line. That's what you want to see. I've never had an ETF market order that didn't execute immediately, but I suppose it could happen. And just in case you're not aware, you should probably only be trading ETFs while the markets are actually open, which can be a problem if you're at work all the time when markets are open. Depending on how you check on this order, sometimes the page looks like this:

Either way, “Executed” is the key. Now it's back to the Holdings page. Find your tax-loss harvesting partner (or choose a new investment if you don't already own some shares of the partner), click on the three dots, and hit “Buy” this time.

That'll take you to an order/trade page. In this case, I was buying $682,000 or so worth of IXUS, but I didn't know how many shares that was. There's a handy little calculator on that trade page that can help, though. And seconds could potentially matter here, so I used it. It looks like this:

I'd show you what the trade page looks like, but apparently I was in so much of a hurry I didn't bother screenshotting it. It looks like the sell order except it says “Buy,” “IXUS,” and “10,947” shares. Once I hit the “Buy” or “Continue” or whatever it said button, another scary warning popped up.

Of course I'm using unsettled funds. I just created those funds 30 seconds ago with the sell transaction, and that transaction won't settle for 1-3 business days. Just remember you can't turn around and sell IXUS an hour later. You're stuck with it until the VXUS sale settles. I hit “Continue,” and I go to the Order Review page.

Yup, looks good. That's what I want to do. I hit “Submit order.”

Then, it was time to refresh the Order Status page and make sure it went through.

Yup, looks good. Looks like it took me less than 4 minutes between the sell order and the buy order. Not a record by any means, but probably fast enough the vast majority of the time to avoid any massive market movement while those dollars were out of the market. A few days later after everything had settled and the website had updated, I checked on the results. Again, go to Holdings, then Realized Gains/Losses, and scroll down to the account you care about, and you can see the results of your tax-loss harvesting. This VXUS →IXUS wasn't the only transaction I did that day, and it wasn't even the only day I did tax-loss harvesting in 2025.

 

This particular transaction was worth a $42,000 loss, and we've booked about $174,000 in losses so far in 2025. If I next go to the Unrealized Gains/Losses page, I can see how this particular new lot has been performing since then. (This screenshot was taken on April 16, seven days later.)

After booking that $42,000 loss, this new lot had gained $71,000 in the week after the tax-loss harvesting. This demonstrates why the best method to tax-loss harvest is to swap for another similar fund rather than sitting out of the market in cash for 30 days to avoid a wash sale. You don't want to change your portfolio significantly. You just want to “harvest” a loss to use to reduce future taxes.

There is some additional hassle and risk with tax-loss harvesting using ETFs rather than traditional funds, but I do think it's probably best to use ETFs for your stock mutual funds in taxable accounts in most situations.

The Bottom Line

What have we learned about tax-loss harvesting today? Let's list it out:

#1 You should do it if you are given the chance. It will save you money.

#2 Beware the wash-sale rules. You can't buy back what you just sold in any investing account (including your spouse's) for 30 days. No, you can't buy more shares just before you sell them either. That 30 days goes both forward and backward.

#3 Beware the 60-day rule. If you don't own a security for at least 60 days around an ex-div date, you turn that dividend into a non-qualified dividend and pay more tax on it.

#4 Don't sweat the substantially identical rules. As long as you're buying a different fund (not a different share class of the same fund), the IRS isn't going to hassle you about it. Buy a fund that is very highly correlated to the original one. Some good examples of TLHing partners for commonly owned Vanguard funds include:

Total Stock Market Index: Large Cap Index, 500 Index, Fidelity TSM, Schwab TSM, iShares Total Stock Market ETF Total International Stock Market Index: FTSE All World Ex-US Index, Developed Markets Index, Fidelity TISM, Schwab TISM, a combination of Developed Markets and Emerging Markets Index Funds, iShares Total International Stock Market ETF REIT Index: Fidelity Real Estate Index Fund, Schwab REIT ETF Small Cap Value Index: Small Cap 600 Value Index, Russell 2000 Value Index

Hardcore investing aficionados can argue all day about the merits of one partner over another, but the point is to get something reasonably similar that you are happy to hold forever. Sometimes you do need two or three of them for a single asset class if the market is dropping rapidly and you want to grab every possible loss you can, but you always have the option to just wait 30 days before repurchasing what you sold. Of course, there is a risk there that the market rebounds rapidly and you end up selling low and buying high, so I prefer to exchange to another fund rather than wait.

What do you think? Have you tax-loss harvested before? Why or why not? What did you find difficult about it? What recommendations do you have for someone who has never done it before?

[This updated post was originally published in 2018.]

The post How to Tax-Loss Harvest with Vanguard appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.