Definition
The wash sale rule prevents investors from claiming a tax loss if they purchase a substantially identical security within 30 days before or after selling. The disallowed loss is added to the new position's cost basis. This rule prevents harvesting losses while maintaining the same market exposure.
Example
You sell stock for a $5,000 loss and buy it back 20 days later. The loss is disallowed; it's added to the new shares' cost basis.
FAQ
What is Wash Sale Rule?
IRS rule disallowing losses if you rebuy substantially identical securities within 30 days.
Why is Wash Sale Rule important?
Wash Sale Rule helps investors evaluate taxes and make more informed decisions.