How Does a “Substantially Identical Security” Relate to the Wash Sale Rule?

In the context of the wash sale rule, a "substantially identical security" refers to an asset that is so similar to the one sold at a loss that buying it back effectively nullifies the tax loss's economic impact. For stocks, this is generally the same stock.

For crypto, the definition is less clear, but typically refers to the exact same coin (e.g. Bitcoin for Bitcoin).

The wash sale rule is designed to prevent claiming a loss while maintaining continuous ownership.