The Wash Sale Rule

As we get closer to the end of the year, many people start looking for ways to minimize their tax liability. One popular way is by selling a stock or security that may have lost value. That in and of itself is a perfectly fine way to harvest losses on that stock or security. But what if you want that stock in your portfolio long-term because you believe in the company? You can just buy it back the day after selling it right because you took a loss on it right? No, that is what is called a “Wash Sale”.

Wash Sale Basics

This next section comes directly from the IRS website in Publication 550.

“A wash sale occurs when you sell or trade stock or securities as a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,

2. Acquire substantially identical stock or securities in a fully taxable trade,

3. Acquire a contract or option to buy substantially identical stock or securities, or

4. Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.”

You cannot have purchased a substantially identical stock or security 30 days before the sale and you cannot purchase a substantially identical stock or security 30 days after the sale. This essentially creates a 61-day window if you want to reacquire or replace that stock or security.

What happens if I violate the wash sale rule?

If the sale violates the wash sale rule the disallowed loss will be added to the cost of your new stock or securities and is your new basis.

For more information, please reach out to the Professionals at The Center for Financial, Legal, & Tax Planning Inc., at (618) 997-3436.

** The information provided above is general information only. It is not financial, legal, or tax planning advice. Please reach out to a professional if you have any questions. **