Wash Sale

Wash Sale can be defined as a transaction where a losing security is sold by an investor to claim a capital loss. However, the investor repurchases the security again after a bargain. It is actually a method employed by investors to try and recognize a tax loss without having to change their position. A wash sale can take place any time during the year. The implementation of the IRS – 30 day wash rule has consequently diminished the effectiveness of this strategy. According to this rule, a taxpayer cannot recognize the loss on an investment if it was purchased within 30 days of sale. When a wash sale occurs, the holding period of the replacement stock includes the period you have hold the sold stock. For example: you have hold shares of XYZ for a period of ten years. You sell the shares at a loss, but buy it back within the wash sale period. No matter how soon you sell the replacement stock, your gain or loss will be for long term.

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Edited and Updated 31st May 2014

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