Understanding the IRS definition of "substantially identical" stocks and securities is crucial for investors who plan to engage in a wash sale. Taxpayers should be aware of the information below before selling any assets. 

Whether stocks or securities are substantially identical depends on the facts and circumstances of each case. (Reg. Sec. 1.1233-1(d)(1)) Ordinarily, stocks or securities of one corporation are not substantially identical to stocks or securities of another corporation; however, a different result may occur as, for example, in a reorganization, where facts and circumstances indicate that the stocks and securities of predecessor and successor corporations are substantially identical. (Reg. Sec. 1.1233-1(d)(1)) Where voting trust certificates eventually could be exchanged for common stock held by the trust, the certificates were held to be substantially identical to the common stock of the same corporation. See Kiddler v. Comm., 30 BTA 59 (1934).

Where preferred stock is convertible into common stock of the same corporation, the relative values, price changes and other circumstances may make the preferred and common stocks substantially identical. (Reg. Sec. 1.1233-1(d)(1); Rev Rul 77-201)

A sale of a stock warrant followed within 30 days by purchase of stock are substantially identical only if the relative values and price changes are similar. (GCM 39036 (9-22-83))

Options to buy securities apparently can be considered substantially identical not only to the underlying stock, but to other options or contracts to buy stocks or securities. (Sec 1091(a))

Generally, bonds are substantially identical if they are not substantially different in any material feature and are not substantially different in several material features considered together (each of which, if considered alone, would not be regarded as substantial). (Rev. Rul. 58-211) The following are considered material features: