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2. An illegal act in which an investor takes essentially the same position as one he/she closed at a loss less than 30 days earlier. Wash sales are intended to provide the investor with a write-off (through the loss) without fundamentally changing the position he/she holds.
When you purchase and then sell or sell and then repurchase the same security or a substantially similar security within 30 days, the double transaction is called a wash sale.
As an individual investor, you can't use any capital losses that the sale produces to offset capital gains from selling other securities in your portfolio.
For example, if you sold 200 shares of an underperforming stock on December 15 intending to use the loss on that sale to offset gains on other sales, your offset would be invalid if you repurchased the stock before the following January 15. But if you repurchased on January 16, the offset would be valid. In fact, avoiding wash sales is an important part of tax planning.
In a broader use of the term, purchasing and then quickly reselling a security may be described as a wash sale, whether the transaction is part of an innocent trading strategy or a pump-and-dump scheme.