Wash Sale Rule - Examples, & Being Substantially Identical (2024)

FAQs

Wash Sale Rule - Examples, & Being Substantially Identical? ›

The taxpayer buys 100 shares of X stock for $1,000. The taxpayer sells these shares for $750 and within 30 days from the sale buys 100 shares of the same stock for $800. Because the taxpayer bought substantially identical stock, the taxpayer cannot deduct the loss of $250 on the sale.

The substantially identical security rule is designed to prevent investors from selling stock or securities to claim a loss on their taxes and then buying back the same—or basically the same—security within 30 days before or after the sale.

An additive will be included within the definition of a "substantially similar" fuel if the additive contains carbon, hydrogen, and any or all of the following elements: oxygen, nitrogen, and sulfur, such that the total additive content other than hydrocarbon: aliphatic alcohols and aliphatic ethers comprises no more ...

Because they both track the exact same index of large-cap U.S. stocks, both SPY and VOO will have almost exactly the same portfolio at any given time. There will be no significant differences in their sector weightings, dividend yield, price to earnings ratios, or any of their holdings.

Generally, respective bonds are `substantially identical,' within the meaning of section 118(a) of the Code, if they are not substantially different in any material feature (unaffected by any related material feature, or as affected by such other feature or features), or because of differences in several material ...

Absolutely, you can buy and sell stocks within the same trading day. This dynamic strategy, known as day trading, is an integral part of the financial landscape and serves as the lifeblood for many traders.

Note: Wash sales are in scope only if reported on Form 1099-B or on a brokerage or mutual fund statement. Click here for an explanation. A wash sale is the sale of securities at a loss and the acquisition of same (substantially identical) securities within 30 days of sale date (before or after).

A substantially identical security is one that is so similar to another that the Internal Revenue Service does not recognize a difference between them. Robo-Advisor Tax-Loss Harvesting: What It Means, How It Works.

The wash-sale rule keeps investors from selling at a loss, buying the same (or "substantially identical") investment back within a 61-day window, and claiming the tax benefit.

substantially the same means that the purchase price to be paid by the prospective buyer shall be no less than ninety percent (90%) of the Offer Price taking into account all material relevant economic matters, including, without limitation, the payment of the purchase price in its entirety in cash (subject to any ...

What is the wash sale rule for substantially identical ETFs? ›

Investors who buy a "substantially identical security" within 30 days before or after selling at a loss are subject to the wash-sale rule. The rule prevents an investor from selling a security at a loss, booking that loss to offset the tax bill, and then immediately buying the security back at, or near, the sale price.

Therefore, selling SPY, QQQ, SPX, or NQX in your retail trading account and buying any of the five funds you mentioned in your 401k plan would not trigger a wash sale, as they are not considered substantially identical securities. Great, one last question.

QQQ, because the great majority of its components can nullify AAPL, would not be considered a “substantially identical security.” Even though AAPL comprises 11.59% of QQQ (as of the date of this writing), it can still move up while AAPL is moving down.

For example, let's say you have 100 shares of XYZ stock that you bought for $10 a share, or $1,000 total. You sell the stock for $8 a share and then 23 days later re-buy 100 shares for $7 a share. Because you've repurchased the stock within the 30-day window, you have a wash sale.

The wash sale rule does apply to options. For example, if you close an option position at a loss and establish a replacement position within the wash sale period--61 days--then that subsequent position will trigger the wash sale rule and the loss--from the sale of the first option--will be disallowed.

If the ETF you're selling and the ETF you're thinking of buying both tracks the same index, that's an indication that the IRS may deem the securities too similar. By inference, 2 ETFs, each tracking a different index, are likely not substantially identical.

If you have a wash sale, however, you cannot claim the write-off until you finally sell the asset and avoid repurchasing it for at least 30 days. After that period, you can re-buy the asset without triggering the wash-sale rules.

To avoid a wash sale, the investor can wait more than 30 days from the sale to purchase an identical or substantially identical investment or invest in exchange-traded or mutual funds with similar investments to the one sold.

As a retail investor, you can't buy and sell the same stock more than four times within a five-business-day period. Anyone who exceeds this violates the pattern day trader rule, which is reserved for individuals who are classified by their brokers are day traders and can be restricted from conducting any trades.

It is always possible to sell a stock for profit purposes, as the Income Tax Department has you paying taxes on the profit you make. This is, as mentioned earlier, a capital gains tax. You can buy the same stock back at any time, and this has no bearing on the sale you have made for profit.