The purpose of the "wash-sale" rule is to prohibit the taking of a tax loss deduction on a security position that is sold for a loss, if the identical position is repurchased again by the account owner within a reasonable short amount of time.
"A loss deduction is barred if within 30 days of a sale you buy substantially identical stock or securities or a 'put' or 'call' option on those securities."
The wash-sale period actually runs for 61 days total. This starts the 30 days before the sale to the 30 days after the date of sale. The wash-sale rule does not apply to gains, inheritance, tax-free exchanges or acquisitions by gift. The wash-sale rule does apply to spouses as well: whereas, a loss can be disallowed if you realize a loss in a security, and your spouse buys a substantially identical position within the period.
Bargain sales occur when a seller gifts or accepts an installment sale on a piece of property to a charitable organization for an amount less than the current fair market value (FMV). Typically, donors will accept less than FMV for a charitable contribution in order to receive a tax deduction.
Current tax law will allow you the full charitable deduction, but you must adjust cost basis which may trigger capital gains. Example:
Bruce owns a Civil War sword that was recently appraised at $40,000 that he would like to see in a museum on display. He paid $20,000 for the sword 10 years ago, and works out an agreement with a museum where they give him his original cost of $20,000 back for the sword.
FMV = $40,000
Adjusted Basis (B) = $20,000
Sale Price (SP) = $20,000
Bruce will get a $20,000 charitable tax deduction; however he will also have a $10,000 capital gain.
Basis allocated to sale = SP x [B/FMV]
= $20,000 x [$20,000/$40,000]
Realized gain = Amount realized (SP) less basis allocated to sale
= $20,000 - $10,000
= $10,000 capital gain
Section 1244 Stock and Installment Sales
TaxesThe wash sale rule can result in the disallowance of a much-needed deduction. Here you can learn what constitutes a wash sale and how to avoid it.
InvestingDo you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
Managing WealthThe wash sale rule is a provision that prohibits taxpayers from creating artificial losses by selling stocks and bonds at a loss, then repurchasing them.
TaxesLearn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
InvestingUsing exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
Financial AdvisorA bear market presents an opportunity for financial advisors to optimize clients' taxable portfolios.
Financial AdvisorInvestors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
Managing WealthWhen an investment sells for less than its purchase price, the difference is a capital loss.
TaxesAn overview of the limits and tax deductions of charitable donations.
TaxesThe year's not quite over yet. See whether taking any of these steps would leave you owing less in 2014 taxes, come April.