Wash Sale Rule
The Wash Sale Rule is a regulation established by the Internal Revenue Service (IRS) that prohibits taxpayers from claiming a tax deduction for a capital loss on a security sold at a loss if they repurchase the same or substantially identical security within 30 days before or after the sale.
This rule aims to prevent taxpayers from claiming artificial tax benefits by selling securities solely to realize a loss while maintaining their investment position. For example, if an investor sells 100 shares of Stock A at a loss and then buys back 100 shares of Stock A within the 30-day window, the IRS disallows the loss for tax purposes, and the loss is added to the cost basis of the repurchased shares. This adjustment postpones the tax benefit until the shares are sold again in the future, ideally at a higher price.
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