Thursday, September 18, 2008

Wash Sale Rule

The wash sale rule isn't a set of washing directions for new clothes. Its a rule that is intended to cut down on the number of people that use stock sales to take artificial losses for tax purposes. The rule is that an investor cannot claim a loss if a stock was sold and another nearly identical stock was purchased within 30 days, before or after the sale. In order to claim a loss with the IRS, if you have a loss on a position, you are unable to sell your shares for a loss and jump right back in and buy more.
An important note also is that your cost basis is adjusted with the wash sale, not reset to the new purchase price. Your "disallowed" loss is going to be added to the cost basis of the new replacement shares. If you have a loss of $50 per share and you purchased a new share at $30 a share, than your new cost basis will be $80.

Wash sales are important to consider before selling stock with the intention of a later repurchase.

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