Wash-Sale Rule

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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References in periodicals archive ?
The key here is that the investment you own as a temporary replacement must not violate the "wash-sale rule", which requires that it must not be "substantially identical" to the investment you sold.
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Of course, to avoid the wash-sale rule, I would have bought different securities if any of those sold was at a loss.
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An ETF is one example of a complex investment vehicle that has "presented investors with new twists on an old plot, [specifically,] how to take advantage of loopholes in the wash-sale rule without running afoul of it." (59) Registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 (60) as "open-end[] funds" (61) or "unit investment trusts," (62) ETFs allow investors to enjoy a diversified investment through the "array of underlying securities" that comprise each ETF.
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According to the wash-sale rule, if you sell a stock or security at a loss you will not be permitted to take that loss on your taxes if you buy the same vehicle 30 days before or after the sale.
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If you buy or sell identical securities prior to this period (30 days before or 30 days after the date of sale), the so-called "wash-sale rule" won't let you take a loss.
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Instead, the taxpayer should sell the property and repurchase it after 31 days (to avoid the wash-sale rule).
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Case 1 requires students to use Excel to perform calculations applying the wash-sale rules to stock sale and purchase transactions.
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Where the sale and reacquisition of the stock or securities has occurred entirely within an IRA or Roth IRA, the wash-sale rules do not apply.
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If you wish to reinvest in the securities that you sell for a loss, beware of the wash-sale rules. Under these rules, after you sell securities at a loss, you must wait at least 31 days before repurchasing them.
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