Wash-Sale Rule

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Wash-Sale Rule

An IRS regulation stating that one may not claim a capital loss for tax purposes if one repurchases the same position within 30 days. Suppose one sells a stock at a substantial loss but immediately buys back the same stock at the same price. Effectively, the locked in loss is "unlocked" and one can still make a profit on the investment in the long term. The 30 day wash-sale rule exists to prevent investors from taking tax deductions on losses they do not actually incur. Some investors find a way around this by exercising a tax swap. The 30 day wash-sale rule should not be confused with wash trading, which is a different concept altogether.
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Just be careful not to buy the same investment for 31 days, or your loss will be disallowed because of the Wash Sale Rule.
The wash sale rule does not apply to cryptocurrency.
Otherwise they run afoul of the wash sale rule that states if the asset sold is replaced by the identical position either within 31 days before or after the date of sale, the tax loss is voided.
If they ignore this, they may be ineligible to claim the loss due to the wash sale rule. However, it is permissible to invest the proceeds in a different fund, even if the replacement fund is in the same subcategory.
Marie Chandoha, president and CEO of Charles Schwab Investment Management, Inc., said, "Given that clients may make hundreds of transactions within a money market fund every year, the burden on tracking this information seems wildly out of proportion with the potential revenue gain for the Treasury." Chandoha added that, "earlier this year, the Department of the Treasury issued a proposed Revenue Procedure that addresses one aspect of the tax implications for a floating NAV fund--the wash sale rule. The proposal includes a de minimis exception from the loss disallowance rule if the loss is less than 0.5% of the taxpayer's basis.
(The so-called wash sale rule, which prohibits immediately buying the same shares back when you take a loss, doesn't apply to gains.) Ideally, you'll want to pay for the tax outside of the investment you sold so as to keep the amount invested the same.
As always, we urge you to consult your tax advisor for specific information about tax loss harvesting and the wash sale rule.
The definition of "substantially identical stock or securities" for purposes of the short sale rules is the same as that used for purposes of the wash sale rule, see Q 7644, Q 7652.
Accordingly, this Note will analyze the proper taxation with respect to the Wash Sale Rule (26 U.S.C.
After many years of uncertainty, the IRS released Revenue Ruling 2008-5, which simply states that the wash sale rule applies to a taxpayer who sold stock for a loss and caused his IRA or Roth IRA to purchase substantially identical stock within 30 days after the sale.
For example, a risk-based wash sale rule attempts to foreclose tax-motivated loss harvesting by denying a deduction to taxpayers who sell securities at a loss and repurchase identical securities within thirty days.
It also includes guidance on how to convert paper losses into realized capital losses without triggering the wash sale rule and how to use the charitable contribution provisions to mitigate the current market's negative effects.