Until the Treasury decides to issue regulations or other guidance, neither I nor anyone else can say exactly how the wash sale rule applies to losses on options. But there’s a pretty good rule of thumb that should tell you when you’re safe and when you’re on thin ice. If the positions you acquired within the wash sale period permit you to participate in the same up and down market swings as the position that produced the loss, there’s a chance the IRS will say you have a wash sale. If that’s not the case, you should be safe.
Suppose you’ve sold a call option at a loss. Buying another call option on the same stock within the wash sale period may be viewed as a wash sale even if the new call option has a different expiration or a different strike price. The IRS might assert that you have a wash sale if you buy XYZ stock, especially if the call was in the money when you sold it. Similarly, you could also have a wash sale if you write a deep-in-the-money put option during the wash sale period.
These remarks are simply my interpretation, and won’t necessarily reflect the interpretation of the IRS or the Treasury. What’s more, other tax pros may have a different take on this question. Unfortunately, there’s no sign that official guidance on these issues will be forthcoming in the near future.
---
I interpret that as the topic is undetermined, and the IRS likely has better things to do than pursue undetermined potential violations.
We don't need to determine tax rules that are not determined by the IRS. Why would we?
If the IRS wants to determine that a Jan IBM $120 call is the same thing as a Feb IBM $120 call for the wash sale rules, they should make that determination clear. Until they make that determination, why would a tax payer make it in an unfavorable way?
My reading on the topic (I can't find it now) indicated the wash sale rule uses the stock's or option's "identifier number" to determine wash sale violations. Since different dated options have different "identifier numbers", trading different dated options within the wash sale period won't trigger wash sale violations.
That makes sense to me.
If it's not accurate, let the IRS clarify the rules.
Regardless, I'll use whatever rules Turbo Tax spits out. |
