Harvesting Losses in High-Yield ETFs:
The 'Safe Swap' Master List

IMPORTANT DISCLAIMER: I am not a CPA, tax attorney, or financial advisor. The strategies discussed below, particularly regarding "Tax Loss Harvesting" and "Wash Sale" interpretations, are theoretical and based on current market structures. Tax laws are subject to change and individual IRS auditor interpretations. The "Safe Swaps" listed below are designed to prioritize safety by changing the underlying asset to avoid "substantially identical" classifications. You must consult with a qualified tax professional before executing any trades.

Introduction: Turning Red Ink into Green Cash

If you’ve been riding the high-yield train in 2025, you know it hasn't been a straight line up. While the income from funds like YieldMax (MSTY), Defiance (MSTX), or Roundhill (TSLW) has been lucrative, the volatility of the underlying assets often leaves investors with unrealized capital losses on their share price.

In December, that red ink is a valuable asset. By "harvesting" those losses (selling the position), you can offset your capital gains and up to $3,000 of ordinary income.

The Challenge: You don't want to sit in cash for 30 days and miss a 50%+ annualized yield or a market recovery. You need to stay invested.

The Trap: The IRS "Wash Sale Rule" disallows the loss if you buy a "substantially identical" security within 30 days.

This guide provides a comprehensive "Safe Swap" matrix to keep your income flowing while harvesting your losses safely.

The Golden Rule: Change the Underlying Asset

Many investors ask: "Can I sell YieldMax TSLY and buy Roundhill TSLW?"

The Risk: Both funds track Tesla (TSLA). While one uses synthetic options (YieldMax) and the other uses swaps (Roundhill), they provide exposure to the same underlying stock. An aggressive auditor could classify these as substantially identical.

The Safe Strategy: To be safe, we swap Exposure, not just the Wrapper. We move from one company to a highly correlated but fundamentally different company (e.g., selling Tesla exposure and buying Nvidia exposure).

The 2025 High-Yield Swap Matrix

Find the ticker you are down on in the left column, and choose a partner from the right. This works both ways—you can swap from TSLY to NVDY, or from NVDY to TSLY.

1. The "Magnificent 7" Tech Rotation

Goal: Maintain exposure to high-growth, high-beta tech stocks.

2. The "Crypto Volatility" Rotation

Goal: Maintain exposure to Bitcoin price action and digital assets.

3. The "Index & Income" Rotation

Goal: Maintain broad market exposure with high yields.

Specific Nuance: The "Wrapper Swap" (High Risk)

We frequently see this question: "Can I swap YieldMax TSLY for Roundhill TSLW?"

The Argument For: TSLY uses synthetic covered calls (options). TSLW uses weekly swaps. They are structurally different funds.

The Argument Against: Both funds explicitly track the performance of Tesla (TSLA). The IRS rule prohibits acquiring a contract or option to buy "substantially identical" stock.

Our Verdict: Avoid. It is not worth the risk of a disallowed loss. It is much safer to swap TSLY for NVDY. You keep the high yield and the tech exposure, but the underlying asset (Tesla vs. Nvidia) is undeniably different.

How to Execute the "Round Trip"

If you really want your original position back (e.g., you love Tesla and want to own TSLY long-term), use this 31-day strategy:

1. Day 1: Sell TSLY at a loss.
2. Day 1 (Immediately): Buy NVDY (or FBY/AMZY) with the proceeds.
3. Result: You have booked the tax loss, but you are still invested in the high-yield tech market. You collect the NVDY distribution for the month.
4. Day 31: Sell NVDY.
5. Note: Hopefully, NVDY has gone up or paid a dividend. If NVDY went down, you can harvest that loss too!
6. Day 31: Buy back TSLY.
7. Result: The wash sale window has closed. You are back in your preferred fund, and you have a tax deduction to use.

Summary Checklist

• Check Dates: Ensure you haven't bought the losing ticker in the last 30 days (including automatic dividend reinvestments!).
• Turn off DRIP: Disable dividend reinvestment on the position you plan to sell at least a month in advance.
• Execute Swap: Sell Loser -> Buy Partner (Different Underlying Asset).
• Wait: Hold the new position for at least 31 days.

FAQ: People Also Ask

Can I swap TSLY for TSLA stock?
This is risky. TSLY uses synthetic options to replicate TSLA. The IRS wash sale rule applies to "options to acquire" substantially identical stock. It is safer to swap to a different company (like NVDY) than to swap between the ETF and the stock it tracks.

Is swapping QQQY for JEPQ a wash sale?
Likely not. While both track the Nasdaq 100, QQQY uses a 0DTE (daily) put-write strategy, while JEPQ uses Equity Linked Notes (ELNs) and monthly calls. The structural difference and active management usually differentiate them enough. However, swapping QQQY for IWMY (Russell 2000) is guaranteed safe as the index is different.

Does this apply to crypto like Bitcoin?
If you hold Crypto ETFs (BITO, MSTY, CONY), the wash sale rule applies because they are securities. If you hold actual Bitcoin (BTC) in a wallet, the wash sale rule currently does not apply (as of 2025 tax rules), but legislation is constantly evolving. Treat ETF swaps carefully.