According to IRS rules, you can't sell a security, take a capital loss on your taxes, and then buy back the same or a "substantially identical" security within 30 days. However, "substantially identical" is poorly defined, especially with regard to mutual funds/ETFs as opposed to individual stocks. Which of the following examples would/wouldn't be considered "substantially identical":

  1. Sell the Vanguard 500 Index and buy the Vanguard Total Stock Market Index? The holdings are about 80% identical and the returns are usually similar, but they are completely different funds with slightly different objectives, since they track different U.S. stock indices.

  2. Sell one company's ETF that tracks a given index and buy another company's ETF that tracks the exact same index.

  3. Sell your long position in a stock and then buy a far out of the money call on the same stock just in case it goes back up a lot.

  4. Sell a bunch of individual stocks in a given sector and then buy a sector ETF whose biggest holdings are the stocks you just sold.

1 Answer 1


I think the IRS doc you want is http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010601

I believe the answers are:

  1. funds tracking different indexes: not substantially identical; the indexes could behave differently
  2. funds tracking same index: substantially identical (though apparently it isn't 100% for sure according to http://fairmark.com/capgain/wash/wsident.htm, I wouldn't want to argue it in court)
  3. option on stock you sold: according to http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010601 their bullet point 3 under Wash Sales, a contract to buy a substantially identical stock is automatically a wash sale (even if the contract itself is not substantially identical to the stock). presumably applies to a short put as well for example.
  4. switch from group of stocks to similar ETF: probably not substantially identical unless your holdings matched the ETF's index exactly (same principle as 1 and 2)

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