wash sale

Wash Sale

An illegal transaction an investor makes by simultaneously buying and selling a security through two different brokers, thereby creating the illusion of activity. Investors do this to try and recognize a tax loss without actually changing their position.

Notes:

The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased withing 30 days of sale (before or after sale).

See also: Crystallization, Daisy Chain, Paper Profit (or Loss), Wash, Wash Sale Rule

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Wash sale

Purchase and sale of a security either simultaneously or within a short period of time, often in order to recognize a tax loss without altering one's position. See: Tax selling.

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wash sale

The illegal purchase or repurchase of an asset within 30 days of the sale date of a basically identical asset that was sold in order to take a tax loss. For example, if an investor sold a security at a loss and then immediately repurchased the same security or a basically identical security, the Internal Revenue Service would consider the transaction a wash sale.