Wash Sales-Opinions Please

[MsTabbyKats]

Hypothetically.....

If a taxpayer has a Fidelity NY Tax Free Fund....and sells at a loss on 11/19

Can he purchase a Vanguard NY Tax Free Fund on 11/20

Although the funds are similar....the holdings aren't "substantially identical" (whatever that means)

I know Vanguard doesn't know what happens at Fidelity....and visa versa....so this wouldn't be reported as a wash sale by Vanguard.

I just want opinions......(I know what I think and would advise....I want to see what others think)

The mutual funds just advise to buy another fund "under their roof"....but I can't find anything about this scenario

Thanks........

[SFA]

if I sell Coke and buy Pepsi, they are both colas, but the recipes are slightly different. Not a wash sale in my opinion.

[jklcpa]

Good analogy SFA.

MsTabbyCats, I wouldn't consider this new mutual bond fund to be substantially identical as the one that was sold, for many reason. There are many NY bonds that each of those funds could potentially invest in, they are with different companies, under different managers, different yields. They probably have a different rules from each other that the investors must follow as to minimum amount of purchase and length of time one must hold the fund, etc.

[kcjenkins]

I agree.

[Mr. Pencil]

Although the funds are similar....the holdings aren't "substantially identical" (whatever that means)

Basically, "stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation." See Pub 550 for "all the facts and circumstances in your particular case."

[Joel]

According to the rules for wash sales, a purchase of substantially identical stock within 30 days before of after the sale at a loss creates a 'wash sale'. Purchasing a mutual fund (or stock) on day 1 and selling it on day 10, at a loss, and not purchasing it again within 30 days of day 10 can be construed in the eyes of some brokerage houses to be a wash sale and will report it on the 1099B as such.

Now that the brokerage houses are reporting basis to the IRS, I wonder how soon CP notices will be forthcoming requiring the wash losses to be disallowed?

[Guest Taxed]

More work for us now, if we want to be able to increase basis for the disallowed wash sale down the road. I am telling my clients to use software like Gainskeeper etc. to keep track of that because I am not going to be able to do that just looking at a 1099B.

[MsTabbyKats]

Here's the exact scenario....does any see an issue?

I have a Vanguard Fund that I want to sell (good long term gains).

I want to use the proceeds to purchase a Vanguard NY Tax Free fund

I have an Oppenheimer NY Tax Free fund being held at Chase. There are long term losses exceeding all my gains. I am holding this fund because the monthly dividend is good.

I want to sell it...for the losses. I want to purchase, at Chase, a Nuveen federally (not NY) tax exempt fund because the monthly dividend, including the NY taxable part, would be just about the same as the Oppenheimer fund.

I want to do the Vanguard thing ASAP (markets tumble). The Chase can be postponed....but I'd like to do it this year.

[Guest Taxed]

I don't see a problem because they are not substantially identical securities in my opinion. If you want to be 100% sure check the prospectus of each fund for the underlying holdings and discuss with tax dept. at the brokerage house (not your broker).

[taxxcpa]

I don't think you need to check the prospectus of each fund. If you sell a Vanguard fund and replace it with a Fidelity or T Rowe Price Fund, there is no way the IRS is going to question it on the grounds that they are wash sales. There would always be some differences between the funds and some overlapping investments. Another point is that the Fund manager is different, and there is a constant churning of the items in the funds.

[MsTabbyKats]

Thanks.......

I don't foresee any real issues........but, subjective is a lot more draining than objective.