GLOSSARY // General Investing
Wash Sale Rule
The wash sale rule is an IRS regulation that disallows a tax loss on a security if you buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window counting the sale date itself. The rule exists to stop investors from harvesting a tax loss while never actually giving up the position.
The loss is deferred, not destroyed: the disallowed amount gets added to the cost basis of the replacement shares, so you recover it when you finally sell for good. The traps are the details. Buying in an IRA still triggers it (and there the loss is permanently gone), a spouse's purchase counts, and the 30 days before the sale catch people who bought a dip and then sold older shares at a loss.
You bought 100 shares at $55, sell them December 15 at $40 for a $1,500 loss, then rebuy 100 shares January 5 at $42, 21 days after the sale and well inside the 30-day window. The $1,500 loss is disallowed for this year and your new basis becomes $57 ($42 + $15 per share). Sell above $57 later and the deferred loss has quietly done its job; the only real damage was losing the deduction in the tax year you wanted it.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.