The key here is that the investment you own as a temporary replacement must not violate the "wash-sale rule
", which requires that it must not be "substantially identical" to the investment you sold.
Treasury also proposed relief from the Internal Revenue Service's wash-sale rule
, which in a variable NAV setting might have posed a problem for investors who buy and sell money funds frequently.
Of course, to avoid the wash-sale rule
, I would have bought different securities if any of those sold was at a loss.
An ETF is one example of a complex investment vehicle that has "presented investors with new twists on an old plot, [specifically,] how to take advantage of loopholes in the wash-sale rule
without running afoul of it." (59) Registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 (60) as "open-end funds" (61) or "unit investment trusts," (62) ETFs allow investors to enjoy a diversified investment through the "array of underlying securities" that comprise each ETF.
According to the wash-sale rule
, if you sell a stock or security at a loss you will not be permitted to take that loss on your taxes if you buy the same vehicle 30 days before or after the sale.
While a comprehensive discussion of the straddle rules is not within the scope of this item, the straddle rules include (1) the wash-sale rule
If you buy or sell identical securities prior to this period (30 days before or 30 days after the date of sale), the so-called "wash-sale rule
" won't let you take a loss.
1091 wash-sale rule
only applies to losses--not to gains.)
Instead, the taxpayer should sell the property and repurchase it after 31 days (to avoid the wash-sale rule
Case 1 requires students to use Excel to perform calculations applying the wash-sale rules
to stock sale and purchase transactions.
Where the sale and reacquisition of the stock or securities has occurred entirely within an IRA or Roth IRA, the wash-sale rules
do not apply.
If you wish to reinvest in the securities that you sell for a loss, beware of the wash-sale rules
. Under these rules, after you sell securities at a loss, you must wait at least 31 days before repurchasing them.