Wash Sale

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

    A series of transactions that results in a zero net sum gain. ...
  2. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer ...
  3. Wash Trading

    The process of buying shares of a company through one broker ...
  4. Bond Washing

    The practice of selling a bond just before it pays a coupon payment ...
  5. Recognized Loss

    When an investment or asset is sold for less than its purchase ...
  6. Substantially Identical Security

    A security that is so similar to another that the Internal Revenue ...
Related Articles
  1. Options & Futures

    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.
  2. Investing Basics

    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 ...
  3. Financial Advisors

    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.
  4. Stock Analysis

    LINN Energy To Work Granite Wash In 2012

    LINN Energy is putting the majority of its capital into the Granite Wash and expects to leverage this play into double-digit production growth for 2012.
  5. Financial Advisors

    'Tis The Season For Tax-Loss Harvesting

    With the end of the year upon investors are looking for ways to reduce their tax bill. One tactic that is often used is tax-loss harvesting.
  6. Stock Analysis

    Apache Corporation And The Midcontinent

    This development will help the company meet production growth goals over the next five years.
  7. Investing Basics

    Investment Tax Basics For All Investors

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

    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. Mutual Funds & ETFs

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  10. Taxes

    Capital Losses and Tax

    When an investment sells for less than its purchase price, the difference is a capital loss.
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 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 >>
  3. What is a "wash sale"?

    The Wash-Sale rule was established to disallow a loss deduction of a security sold, if within 30 days of the date of the ... Read Answer >>
  4. What tax implications are there for parties involved with a reverse repurchase agreement?

    Learn about the tax consequences that the buyer can face as a result of a reverse repurchase agreement ("reverse repo") with ... Read Answer >>
  5. When would I have to fill out a Schedule D IRS form?

    In general, taxpayers who have short-term capital gains, short-term capital losses, long-term capital gains or long-term ... Read Answer >>
  6. Does location matter for taxes when calculating gross sales?

    Learn more about gross sales taxes and how merchants are impacted by them. Find out if different business locations are impacted ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center