DEFINITION of 'Crystallization'

The act of selling and buying stocks almost instantaneously in order to increase or decrease book value. This is a routine method used by many investors and companies to change book values without changing beneficial ownership.

BREAKING DOWN 'Crystallization'

An example of this occurs when an investor needs to take a capital loss for a particular stock, but still believes the stock will rise. Thus, he/she would crystallize the paper loss by selling the stock and buying it back right away.

Most tax agencies have regulations (such as the wash-sale rule) to prevent taking a capital loss in this fashion.

  1. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer ...
  2. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  3. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  4. Pairoff

    1. A purchase of securities to offset a previously transacted ...
  5. Wash Sale

    A transaction where an investor sells a losing security to claim ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
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