What is a wash sale and how does it apply to ETFs?

A wash sale rule can apply if you sell an ETF at a loss and then repurchase the same ETF (or potentially a "substantially identical" security) within the wash sale window. The loss may be disallowed for current tax purposes and added to your cost basis.

The tricky part with ETFs is what counts as "substantially identical." Two different ETFs tracking the same index may or may not be treated that way depending on interpretation and circumstances.

If you're doing tax-loss harvesting with ETFs, many investors use a similar but not identical replacement (for example, different index exposure) to maintain market exposure while reducing wash sale risk. If this is important for you, confirm details with a tax professional.