Tax Facts

7528 / What is “substantially identical property”?

In the case of stock and securities, “substantially identical property,” for purposes of the short sale rules, has the meaning given to “substantially identical stock or securities” for purposes of the wash sale rule.1 See Q 7539 for details. It would appear that the same definition should apply for purposes of constructive sales of appreciated financial positions under IRC Section 1259.


A securities futures contract (see Q 7586) to acquire substantially identical property will be treated as substantially identical property.2

In addition, for purposes of short sales entered into as part of an arbitrage operation (see Q 7533), a taxpayer will be deemed to hold substantially identical property for arbitrage operations at the close of any business day if he or she owns any other property acquired for arbitrage operations (whether or not substantially identical) or has entered any contract in an arbitrage operation which in either case, at the close of that day, gives the taxpayer the right to receive or acquire substantially identical property.3





1.   Treas. Reg. § 1.1233-1(d).

2.   IRC § 1233(e)(2)(D).

3.   IRC § 1233(f)(3); Treas. Reg. § 1.1233-1(f)(2).


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