Identify losses applied to new purchases. If shares of the same company are purchased within 30-days after the sale, the loss becomes a wash to the extent of the new purchase. Using the same example, if a new 50 shares are purchased within 30 days, then the entire loss on the 50 share sale is a wash.
How do you explain a wash sale?
A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days (before or after the sale date).
How does the wash sale rule work for stocks?
The basic rule is this: if you sell a stock or security and re-buy the same stock or security within 30 days, you can’t claim it as an investment loss at tax time. You also can’t buy the stock option or call as those transactions are prohibited under the Wash Sale Rule, too.
When to use the 30 day wash sale rule?
30 Day Wash Sale Rule. Most people understand the wash sale to mean you have to wait 30 days after the sale of a security before repurchasing a substantially similar investment. That is only part of the rule. The wash rule is actually 61 days: the day of the sale, 30 days after the sale, and 30 days before the sale.
Why is the wash sale rule important to the IRS?
It’s hard to pull a fast one on the IRS! The wash sale rule is an IRS regulation that prohibits you from claiming a tax deduction on a stock sold in a wash sale. It was designed to prevent taxpayers from selling a security at a loss so they can claim that loss, and then buy back the same or substantially identical security again.
When do you have to use the wash rule?
The period of time you must wait to reinvest is 30 days from when you sell the investment. If you repurchase the investment or one very similar to it, you will lose the ability to deduct the loss no matter what price you repurchased the shares at. This is the basic understanding of the wash rule.
