Be Careful of the IRS ‘Wash Sale Rules’ to Avoid a Tax Loss in the Stock Market

Ignoring It Could Leave You High and Dry on Tax Day

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Buying and selling is an everyday occurrence in the stock market. So are losses, which means selling an investment at a loss is sometimes inevitable. But whether you are trying to recoup losses without losing great investments, or you simply have seller’s remorse, it is important to avoid the wash-sale rule.

A wash-sale occurs when you sell an investment at a loss and replace it with a “substantially identical” investment 30 days before or after the sale date. Ignoring this rule can lead to a hefty and sometimes unexpected tax bill.

Rules of the Wash-Sale

The wash-sale rule was established to prevent investors from using a crafty trick to get a tax benefit. You can get a tax benefit when selling any investment in a taxable account that has lost money. The wash-sale rule blocks investors from selling investments at a loss, buying the same or substantially identical investment back within 30 days before or after the sale, and claiming the tax benefit from the initial loss.