DEFINITION of 'Tax Selling'

A type of sale whereby an investor sells an asset with a capital loss in order to lower or eliminate the capital gain realized by other investments. Tax selling allows the investor to avoid paying capital gains tax on recently sold or appreciated assets.


When participating in tax selling, an investor must not execute a wash sale. Wash sales occur when an investor sells an asset through a broker in order to realize a loss, but simultaneously repurchases the same asset from another broker. This strategy allows the investor to maintain his or her position while incurring a capital loss. Wash sales are illegal, whereas tax selling is allowable.

Tax selling often occurs in December, as investors try to realize capital losses for the upcoming income tax season. If investors would like to repurchase the shares sold for a loss, they can do so after the 30-day wash sale rule no longer applies. In addition, shares sold for a loss must have been in the investor's possession for more than 30 days.

  1. Capital Loss

    A capital loss is the loss incurred when a capital asset that ...
  2. Wash

    A series of transactions that results in a zero net sum gain. ...
  3. Capital Loss Carryover

    The net amount of capital losses that aren't deductible for the ...
  4. Capital Gain

    Capital gain is an increase in a capital asset's value that is ...
  5. Wash-Sale Rule

    A regulation that prohibits a taxpayer from claiming a loss on ...
  6. Long-Term Capital Gain or Loss

    A gain or loss from a qualifying investment owned for longer ...
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. Investing

    Explaining RBC's Wash Trade Accusations

    On April 2, U.S. regulators accused RBC of operating a wash trading scheme. Find out what this means.
  4. 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.
  5. Taxes

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  6. Taxes

    '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.
  7. Investing

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
  8. Investing

    Washing Trades in a Canadian Registered Account

    For Canadian RRSP accounts, washing same-day trades saves investors the exchange fee.
  9. Taxes

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
  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 >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center