Wash Sale Rule
Financial term in the Tax category
Definition
An IRS rule that disallows claiming a tax loss on a security if you purchase the same or a substantially identical security within 30 days before or after the sale. The disallowed loss is added to the cost basis of the replacement shares.
Related Terms
Tax-Loss Harvesting
A strategy of selling investments at a loss to offset capital gains and reduce tax liability. Harvested losses can offset gains dollar-for-dollar, and up to $3,000 of excess losses can be deducted against ordinary income each year.
Capital Loss
A loss incurred when selling an asset for less than its purchase price. Capital losses can offset capital gains to reduce tax liability.
Cost Basis
The original purchase price of an asset, used to calculate capital gains or losses for tax purposes. Adjusted for stock splits, dividends, and return of capital.
Frequently Asked Questions
What is Wash Sale Rule?
An IRS rule that disallows claiming a tax loss on a security if you purchase the same or a substantially identical security within 30 days before or after the sale. The disallowed loss is added to the cost basis of the replacement shares.
Why is Wash Sale Rule important in personal finance?
Wash Sale Rule is an important tax concept that helps individuals make better financial decisions. Understanding Wash Sale Rule can improve your financial planning and help you achieve your money goals.
How does Wash Sale Rule relate to Tax-Loss Harvesting?
Wash Sale Rule and Tax-Loss Harvesting are related financial concepts. A strategy of selling investments at a loss to offset capital gains and reduce tax liability. Harvested losses can offset gains dollar-for-dollar, and up to $3,000 of excess losses can be deducted against ordinary income each year.
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