7559 / How does the wash sale rule apply to transactions involving options?
A “wash sale” (see Q 7536) is a sale or other disposition of stock or securities in which the seller, within a 61-day period (beginning 30 days before and ending 30 days after the date of such sale or disposition), replaces those shares of stock or securities by acquiring (by way of a purchase or an exchange on which the full gain or loss is recognized for tax purposes), or entering into a contract or option to acquire, substantially identical stock or securities.1 For the tax effect of a wash sale involving a sale of stock at a loss followed by a purchase of an option, see Q 7536.
Options to acquire or sell stock or securities are generally included in the definition of stock or securities for purposes of the wash sale rule (see Q 7539); consequently, the sale (at a loss) and reacquisition of options, with or without ownership of the underlying stock, would trigger the wash sale rule. Similarly, it would appear that “substantially identical stock or securities” would include “substantially identical options or contracts to acquire or sell stock or securities” as well.2
1. IRC § 1091(a); Treas. Reg. § 1.1091-1(a).