Let's say an investor has $500,000 in a stock like VTI. He wants to sell $50,000 of that, but doesn't want to trigger capital gains.
One way to lock-in gains would be to short sell $50,000 worth of VTI, essentially creating a neutral position (short selling against the box). However, doing so to defer CGT is prohibited by IRC 1259.
However, this section uses term "substantially identical property", which is also used to identify wash sales. As far as I understand, wash sales can be avoided by using 2 stocks that are a bit different (e.g. track different indexes), but still have 0.99+ correlation (e.g. VTI and SCHB).
Therefore, I'm wondering if this logic applies here too? Can the investor "realize" $50,000 of his VTI by short selling $50,000 of SCHB, and not be subject to CGT on that?
Moreover, does this make any sense? Will the investor be able to do anything meaningful from the short sale credit (e.g. withdraw it)? What if he has a margin and/or portfolio margin account? Will he still need to pay margin interest on that?
If he still has to pay interest, what was the point of short selling against the box before IRC 1259? Was that simply a way to defer CG until they qualify for long-term rate, but the funds had to be essentially locked-in until both positions were closed?