When conducting a tax swap, an investor must use identical issues in order for the swap to be allowed by the IRS.

Question

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A tax swap involves selling a security that has incurred a loss and simultaneously buying a similar, but not identical, security to replace it. The IRS prohibits the deduction of losses from "wash sales," which occur when an investor sells a security at a loss and buys the same or a substantially identical security within 30 days before or after the sale. Therefore, the securities involved in a tax swap must not be identical to avoid the wash sale rule.

When Conducting a Tax Swap, an Investor Must Use Identical