Substantially Identical Security
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Definition of 'Substantially Identical Security'
A security that is so similar to another that the Internal Revenue Service (IRS) does not recognize a difference between the two. Substantially identical securities can include both new and old securities issued by a corporation that has undergone reorganization. Convertible securities and common stock of the same corporation can also fall into this category if the market and conversion prices are similar.
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Investopedia explains 'Substantially Identical Security'
Substantially identical securities cannot be used in tax swaps to create capital losses. Securities used in swaps must be similar but not substantially identical; if they are, the IRS will consider the transaction to be a wash sale, and will disallow it.
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