Wash sales, losses and similar securities

JHZR2

Staff member
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46,293
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New Jersey
Trying to discuss wash sales and takin losses. Can't quite find this scenario. Say you want to sell a security to take a loss. I get that you can't buy the same or sunstantially the same security within 30 days. But apparently there is an impression that to take the loss, you have to sell all securities that are substantially similar, taking your holdings to zero. A hypothetical example - I have two REITs. One is doing well and one is doing poorly. I want to sell the one that is doing poor to take a loss. Obviously within 30 days I cannot sell the bad one and dump the money into the good one - that would be a wash sale. But: 1) do I need to sell shares in both the good and bad REITs to be able to coun the loss, such that my portfolio has no exposure to that security type? 2) if the good REIT pays a dividend in that 30 day window, and it is reinvested (effectively a purchase), does that dividend count as a wash sale or against the loss being taken? Thanks!
 
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19,528
Location
Lake Forest, CA
1) No, you don't need to sell both REIT's to be able to count the loss. 2) The dividend reinvested doesn't count as a wash sale, and the report to IRS doesn't say anything about dividend reinvested, just dividend distribution.
 

jaj

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1,060
Location
Vancouver, Canada
1) No. "Substantially the same" means a different security of the same issuer, not a different issuer. The "substance" of the security is the issuer and the underlying assets and liabilities. 2) If you sold the REIT knowing that there'd be a dividend payment in the period, then yes, it's a wash sale (and ignorance of the facts is not a defense). You have to sell the dividend shares and start the 30-day clock over. Just because the reporting to the IRS won't reflect a wash sale doesn't mean that it isn't a wash sale. If you're audited then it will be a problem.
 
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