The wash-sale rule is a nasty little piece of tax code (via Bill Bischoff)
The saving grace of making a poor stock or mutual fund investment in a taxable brokerage firm account is that you at least get a capital loss when you sell. The loss can then offset gains from your more successful investments, unless the dreaded wash-sale rules disallow your write-off. Here’s the scoop on this nasty little piece of the tax code.
Options are included in the definition of stocks and securities, so you can also have a wash-sale when you unload options at a loss. What about replacing one S&P 500 index mutual fund with another? Unfortunately, the IRS begs the question by saying only that all circumstances must be considered in evaluating whether stocks or securities are substantially identical. What the heck does that mean? Nobody knows. In my opinion, no mutual fund is substantially identical to another.
Example 1: Say you purchased 100 shares of XYZ Co. on Dec. 1, 2018, for $2,000. On April 1, 2019, you sell the shares for $1,200, thus incurring an $800 short-term loss. But on April 10, 2019, you have a change of heart and buy back 100 shares for $1,300. Your $800 loss is disallowed, but it gets added to the basis of the replacement shares. So your basis becomes $2,100 . In addition, the holding period for the replacement shares includes the Dec.
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