Questions on wash sale rule when exchanging VOO for VTI - different indices but correlated

The IRS defines a wash sale as selling a security at a loss and purchasing a "substantially identical" security within 30 days before or after the sale. The key question is whether VOO and VTI are "substantially identical" - and this is where it gets tricky. While VOO and VTI are highly correlated (as you noted, around 98%), they do track different indices and have significantly different compositions. VOO follows the S&P 500 with about 500 holdings, while VTI tracks the total stock market with over 3,500 holdings. VTI essentially contains all of VOO plus thousands of mid and small-cap stocks. Most tax professionals would likely argue these are not substantially identical securities since they track different indices with different compositions. However, the IRS has never provided definitive guidance specifically about ETFs tracking different but overlapping indices. If you're being cautious, waiting 31+ days before repurchasing VOO is the safest approach. If you do claim the loss, be prepared to defend your position that these are not substantially identical if questioned.

I was in a similar situation last year trying to harvest some tax losses without triggering wash sales. After a lot of research, I ended up using taxr.ai to analyze my specific situation. Their software actually has a specific feature that analyzes ETF pairs for wash sale risk. In my case, I was swapping between similar sector ETFs, and their analysis showed the holdings overlap percentage and gave a risk assessment. The report they generated was really helpful when I filed my taxes as supporting documentation. You might want to check out https://taxr.ai if you're concerned about how the IRS might view your specific ETF swap.

I was really skeptical about these tax analysis services too, but I ended up trying taxr.ai after reading about it here. I was in a similar situation with some Vanguard/iShares ETF swaps I did last year. Their analysis was surprisingly detailed - they actually provided a percentage breakdown of the holdings overlap and even referenced relevant tax court cases about "substantially identical" securities. The report they generated gave me enough confidence to claim my losses. What I found most helpful was their specific section on ETF pairs that addressed exactly what the OP is asking about. They explained that while correlation is high between total market and S&P funds, the composition differences are significant enough that most tax professionals consider them distinct securities.

After waiting on hold with the IRS for over 2 hours trying to get clarification on a similar wash sale question, I finally discovered Claimyr. It's a service that basically waits on hold with the IRS for you and then calls you when an agent picks up. I was able to get a clear answer from an actual IRS agent about my ETF swap situation without wasting my entire afternoon on hold. I highly recommend checking out https://claimyr.com if you want definitive guidance. You can see how it works at https://youtu.be/_kiP6q8DX5c - it literally saved me hours of frustration.

I was extremely skeptical about Claimyr, but after waiting on hold for 3+ hours myself and getting disconnected twice, I finally tried it when dealing with a wash sale question for my S&P 500 vs Total Market ETF swap. It actually worked exactly as advertised. They called me when they reached an agent, and I was able to speak directly with someone at the IRS. What surprised me was that the agent was quite knowledgeable and walked me through the "substantially identical" criteria they typically apply. For my specific situation with VOO and VTI, the agent explained that while they couldn't give formal tax advice, the fact that one tracks 500 companies and the other tracks 3500+ companies would generally be considered a material difference in composition. They suggested documenting the index differences, holdings count differences, and performance divergence as supporting evidence.

I did exactly this last year with VTI and VOO to harvest some losses. I documented the differences between the funds (different prospectuses, different indexes, different number of holdings) and claimed the loss. The key thing is that they track fundamentally different indexes - one is the total market and one is large cap only. Despite the high correlation, they are technically different securities. The IRS hasn't provided clear guidance specifically about ETFs, but the general consensus among tax professionals is that different indexes = different securities. I'd recommend keeping documentation of the differences between the funds with your tax records just in case.

Another option to consider - instead of going back to VOO after selling VTI, you could buy a different S&P 500 ETF like IVV (iShares Core S&P 500) or SPY (SPDR S&P 500). These track the exact same index as VOO but are issued by different companies. Some tax professionals argue this approach is riskier from a wash sale perspective since they track the identical index, but others argue that different fund companies with different expense ratios and different legal structures make them not "substantially identical." The IRS hasn't provided definitive guidance specifically on this situation either.

I think you're safe with this strategy. The key is that VOO and VTI track fundamentally different indices with substantially different compositions. The IRS has never provided specific guidance on ETFs that track different indices, but most tax professionals consider them different securities. Just document the differences between the funds (different indexes, different compositions - 500 vs 3500+ holdings) and keep good records of your transactions with dates clearly noted. The high correlation doesn't make them identical securities since one contains significantly more holdings than the other. If you're still concerned, waiting the full 31 days is always the safest approach, but based on my experience as someone who has done similar tax-loss harvesting between different index ETFs, you should be fine claiming the loss.