Wash Sale Rule
If I own a S&P Index fund and want to take advantage of a tax loss. The IRS rule states you can’t buy substantially identical securities within 30 days. Is anybody aware of any determinations regarding purchasing an actively managed blue chip mutual fund for a period of 31 days would be considered substantially identical? They both may have similar holdings however in different percentages and would be active vs passive.
Permalink Submitted by Alan Spross on Tue, 2008-12-30 20:20
The holdings, not the style of the fund would determine if it is substantially identical. You could not repurchase another fund or ETF that tracked the S&P 500 in this case. You would also be OK purchasing a total market index fund, since the S&P 500 composes about 85% of a total market fund, and the 15% difference is enough not to be considered identical. Therefore, you have a wide latitude in avoiding a wash sale. The IRS does not expect you to add up the %s of hundreds of different holdings to calculate the degree of duplication in general purpose mutual funds.
You could also re purchase a growth and income fund to replace another company’s growth and income fund, and there would be enough of a difference not to present a problem, even though they have the same general investment goal.