Wash Sales
A wash sale occurs when you sell or trade securities at a loss and within 30 days before or after the sale, do the following:
- Buy substantially identical securities
- Acquire substantially identical securities in a fully taxable trade
- Acquire a contract or option to buy substantially identical securities
The IRS leaves it up to investors to determine if a position is substantially identical. Here are some good practices you can follow when selecting a replacement security.
For example, if you sell an ETF or index fund, you can replace it with a product that tracks a different index. Most investors consider actively managed funds to be unique enough to be in safe territory.
In next blogpost, we will discuss a tax arbitrage practice.