UK Accounting Glossary
A wash sale occurs if an investor sells a stock at a loss and replaces the sold security with a virtually identical security within 30 days before or after the original stock’s sale. The Internal Revenue Service prohibits investors from claiming a tax loss on a wash sale. The purpose of wash sale restrictions is to discourage investors from selling stock merely to claim a tax deduction. The wash sale period for tax purposes consists of the day of the sale, 30 days before, and 30 days after the sale. To avoid triggering wash sale rule consequences and eliminating a potential tax deduction on a stock sale, investors should avoid purchasing the same stock during the wash sale period. If the stock sale occurs March 31, the wash sale period includes all of March and April.
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This glossary post was last updated: 5th February 2020.