Let's say I have a bull call spread that expires next year or later. Currently, it is showing a loss. Am I allowed to close this spread, realize a loss this year, and then open an equivalent bull put spread? Or would this be considered a wash sale due to the positions being "substantially identical"?
What I have done in the past is sold stock or ETF for a loss, then sold a deep ITM put expiring more than 30 days out. If possible, switch to a different underlying that is closely correlated, such as SPY vs. VOO. I think as long as your strikes are not the same, it won't be flagged as a wash sale.
It's a little more than that. Simply going up 5 points in your strike doesn't absolve "substantially similar".
Why would this be a violation, you are closing a loosing trade and then opening another in another financial year! don't day traders in Futures close trades before the official Day's end to avoid overnight margins and then pen same trade gain after the short break of 45 mins
The IRS has something called the wash sale rule. It's worth a google. Also might be worth googling the difference in long term and short term capital gains treatment for futures versus other securities.
Agree. Although I think even that you could get away with. My broker would not classify that as a wash sale. The only trades that I have seen classified as a wash sale is when I sell a stock for a loss and then repurchase the exact same ticker within 30 days. That's an obvious wash sale. Beyond that, it's really fuzzy and it seems that they don't know how to enforce it. One could argue that QQQ and XLK or even SPY and QQQ are substantially similar.
I don't think anyone would consider SPY and QQQ substantially identical, or QQQ and XLK. Those are well accepted ways to legally get around the wash sale rule. Certainly you could "get away" with buying a different option strike, just like you can "get away" with not declaring income you received without a W-2 or 1099. Brokers screen to flag wash sales is pretty narrow and there isn't any tax law precedent that I'm aware of that excuses one from properly filing their taxes because their broker didn't classify income correctly, so while you may be less likely to be audited if your broker doesn't flag it and you don't report it, if you are audited you'll get called on a change or strike of an option on the same security. It's not really any more fuzzy than any other tax issue, SPY and QQQ definitely OK, 5 point switch in option strike definitely not OK, you take more risk the closer you are to the latter than the former. It's just not worth the risk or the worry in my life to save a couple bucks on taxes, but everyone's different.
It's not the same because the IRS has failed to define substantially similar. Claiming that SPY and QQQ are substantially similar is an opinion. Whether or not one failed to declare W-2 income or 1099 gains is a matter of fact, not opinion. What the IRS should do is provide a statistical definition for substantially similar. Such as if the daily return correlation over past 180 days between the two produces has a Pearson correlation coefficient within a specific range, then it qualifies as substantially similar...very easy to do that and could be easy for the broker to automate.
That's a fight that will cost you tens of thousands in attorney fees to win. US tax code is full of ambiguity, try taking a look at qualified business use of a company owned aircraft if you're really bored one day! The fact of the matter, as depressing as it is, is that there is a whole industry of tax attorneys out there who have seen what gets caught in audits and what doesn't and they use that built up knowledge base to give you a probability that a given strategy will pass muster with the IRS or not. Life's too short for me to do anything but pay them for their expertise and be relatively conservative based on that expertise when it comes to trying to get extra tax breaks. I've always found it far easier and more pleasant to just make another marginal dollar then to try to save that same amount on taxes.