What is a 'Wash Sale'

A wash sale is a transaction where an investor sells a losing security to claim a capital loss, only to repurchase it again for a bargain. Wash sales are a method investors employ to try and recognize a tax loss without actually changing their position.

BREAKING DOWN 'Wash Sale'

The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased within 30 days of sale (before or after sale).

RELATED TERMS
  1. Wash Trading

    The process of buying shares of a company through one broker ...
  2. Wash

    A series of transactions that results in a zero net sum gain. ...
  3. Tax Selling

    A type of sale whereby an investor sells an asset with a capital ...
  4. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer ...
  5. Bond Washing

    The practice of selling a bond just before it pays a coupon payment ...
  6. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
Related Articles
  1. Financial Advisor

    How to Avoid Violating Wash Sale Rules When Realizing Tax Losses

    How to avoid violating the IRS wash sale rules when realizing capital losses in your taxable investment account.
  2. Retirement

    Can IRA Transactions Trigger The Wash-Sale Rule?

    In 2008, the IRS said: Yes, they can. Find out what this means and how to avoid penalties.
  3. Managing Wealth

    Explaining the Wash Sale Rule

    The wash sale rule is a provision that prohibits taxpayers from creating artificial losses by selling stocks and bonds at a loss, then repurchasing them.
  4. Financial Advisor

    Washing Trades In A Canadian Registered Account

    For Canadian RRSP accounts, washing same-day trades and using money market funds to bridge the gap over a multi-day trading period saves investors the exchange fee and will help their bottom ...
  5. Taxes

    Capital Losses and Tax

    Capital losses are never fun to incur, but they can reduce your taxable income. Knowing the rules for capital losses can help you maximize your deductions and make better choices about when to ...
  6. Financial Advisor

    Using Tax-Loss Harvesting to Keep Your Gains

    Harvesting tax losses is a key skill that investors can use to keep more of their money in their pockets the next time they file taxes.
  7. Taxes

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  8. Financial Advisor

    Here's the Best Way to Skirt Capital Gains Taxes

    Taxpayers who know the rules for netting gains/losses can generate additional losses to net against the taxable gains in their portfolios. Here's how.
  9. Financial Advisor

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  10. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
RELATED FAQS
  1. Is there a situation in which wash trading is legal?

    Learn about what wash trading is and how it can affect the value of a stock. Explore the difference between wash trading ... Read Answer >>
  2. What are some high-profile examples of wash trading schemes?

    Examine the RBC Bank wash trading case and explore the potential wash trading challenges presented by high-frequency trading ... Read Answer >>
  3. What is the difference between wash trading and insider trading?

    Explore the differences between two trading practices, wash trading and insider trading, and find out why these practices ... Read Answer >>
  4. What cost basis reporting rules are set by the Internal Revenue Service (IRS)?

    Read about the cost basis reporting regulations imposed by the Internal Revenue Service and some options available to individual ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center