Wash-Sale Rule

Wash-Sale Rule

An IRS regulation stating that one may not claim a capital loss for tax purposes if one repurchases the same position within 30 days. Suppose one sells a stock at a substantial loss but immediately buys back the same stock at the same price. Effectively, the locked in loss is "unlocked" and one can still make a profit on the investment in the long term. The 30 day wash-sale rule exists to prevent investors from taking tax deductions on losses they do not actually incur. Some investors find a way around this by exercising a tax swap. The 30 day wash-sale rule should not be confused with wash trading, which is a different concept altogether.