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While I'm quite aware of most of the ins and outs of IRS 30-day wash sale rule, can anyone answer this?
If I sell a long position in a stock for a loss, then buy a call option for that stock the same day, does the 30-day rule affect whether I can write off the loss? IRS rule reads somewhat vaguely. While I view a common share as a different security than a call option in that common, the IRS may see it another way. Anybody know?
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Parula writes (in part):

If I sell a long position in a stock for a loss, then buy a call option for that stock the same day, does the 30-day rule affect whether I can write off the loss?

I reply:

Maybe. The wash sale rule applies if your economic position is substantially identical. So if you buy a call option that's deep in the money, I'm confident that you'd have a wash sale, while if you bought one that's not in the money, I suspect that you would not. How deep in the money? Only the IRS knows for sure, and they won't tell until it's too late. --Bob
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If I sell a long position in a stock for a loss, then buy a call option for that stock the same day, does the 30-day rule affect whether I can write off the loss?

Parula,

I'm afraid it is NOT at all vague. Per IRS pulication 550 "A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you ... acquire a contract or option to buy substantially identical stock or secutities."

The situation you have described is a wash sale.

Good Luck,
Z
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While I'm quite aware of most of the ins and outs of IRS 30-day wash sale rule, can anyone
answer this?
If I sell a long position in a stock for a loss, then buy a call option for that stock the same day,
does the 30-day rule affect whether I can write off the loss? IRS rule reads somewhat vaguely.
While I view a common share as a different security than a call option in that common, the IRS
may see it another way. Anybody know?


The common share and call option are different but to the IRS (and your intent) they are substantially the same because they do the same thing. The Call protects (continues) your position and allows you to profit from future increases in the stock price. That's a no-no that prevents you'r realizing a tax loss on the prior sale under the Wash Sale Rules. You read them correctly and they are onbly vague if you're trying to circumvent their intent. It doesn't make any difference whether it's and in or out of the money Call because it will track the same.
Ed
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