The wash sale rule applies to stocks, mutual funds and exchange-traded funds. It can also apply to options and futures contracts to buy or sell a stock, but does not apply to losses on trades of commodity futures or foreign currency.
If I sell one to generate a loss, but then within 30 days I buy the other, will that constitute a wash sale?
- As a rule you would consider a wash sale when you sell and repurchase the same stock. If that occurs, then you would not be allowed the loss and instead that becomes part of the cost basis (added to the purchase price) of the stock purchased within the 60 day window (30 days before or after the sale).
I don't really understand what "substantially identical" means.
- The IRS has various tax language phrases that are not specific and so become interpretive.
- As far as 'substantially identical' the IRS included “ordinarily” in the description without any indication as to what that means. This could be interpreted to mean that a substantial difference in management or a substantial amount of overlap in similar mutual funds could constitute a substantially identical position.
- Substantially identical securities can include both new and old securities issued by a corporation that has undergone reorganization, or convertible securities and common stock of the same corporation.
Example: If I bought stock through my broker (Merrill Lynch, Charles Schwab, Vanguard, ETrade, etc) a wash sale would occur for the same stock but not for various stocks being held within an account.
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