Final answer:
The statement is True. A wash sale occurs when an individual sells a security at a loss and then purchases a substantially identical security within a 30-day period.
Step-by-step explanation:
The statement is True.
A wash sale occurs when an individual sells a security at a loss and then purchases a substantially identical security within a 30-day period.
The wash sale rules prevent individuals from claiming a tax deduction for the loss in such cases. However, if the security that was sold is replaced with a similar security that is not substantially identical, the transaction would not be considered a wash sale and the loss can be claimed for tax purposes.
For example, if an individual sells shares of Company A and within 30 days purchases shares of a different company in the same industry, it would be considered a valid replacement and not subject to the wash sale rules.
One way to get around the wash sale rules is to replace the security that was sold with a similar, rather than a substantially identical, security.
The statement is A) True. The IRS wash sale rule prevents taxpayers from claiming a tax deduction for a security sold in a wash sale. A wash sale occurs when an individual sells a security at a loss and then purchases the same or a "substantially identical" security within 30 days before or after the sale.
However, if the security purchased is similar but not substantially identical, it does not trigger the wash sale rule, allowing the investor to claim the loss for tax purposes.
For example, selling a company's stock at a loss and then buying another company's stock in the same industry, which behaves similarly but is not the same stock, would not constitute a wash sale.