Clicked Gallery

What is the Wash-Sale Rule?

Highlighted from a real earnings story. Explained by Clicked.

Used in a sentence

The Daily Ledger · Markets

Her accountant flagged the December trade as a wash sale, so the loss she planned to claim moved onto the shares she had just bought back.

The reader highlighted one word mid-article. Clicked made the trading term “wash sale” easy to understand:

Explained in three depths

Same facts, different vibe — Slang mode 😎

The Clicked way

●○○

Overview

The wash-sale rule is a US tax rule that stops an investor claiming a loss on shares when they buy the same shares back within 30 days either side of the sale. An investor who sells at a loss cuts their tax bill, because the loss cancels gains made on other investments. The IRS asks whether the investor actually left the position they claim to have lost money on, and a fast repurchase answers no. The refused loss moves onto the cost of the new shares.
●○○

Overview

The wash-sale rule is the taxman declining to fund a loss you took back the same week. Dump a stock, grab it again inside a month, and on paper you own what you owned before. Your write-off disappears for the year and follows the price of the repurchased stock instead, surfacing whenever you finally sell up properly and leave it alone. Delayed, then, rather than confiscated. 😎

A quick take — often all you need.

●●○

Detail

The wash-sale rule is a US tax rule that denies an investor the loss on a holding they sell and re-acquire, or replace with something the IRS considers near enough identical, within a month either side of that sale. A loss is worth claiming because it cancels gains on other investments, and an investor with none can still take up to 3,000 dollars a year off wages. The rule turns on whether the investor actually left the position they say went against them. Someone who sells and repurchases immediately owns what they owned a week earlier, so the IRS withholds the deduction for that year. A purchase made beforehand counts against them too. An investor who buys 100 extra units on the first and disposes of 100 older ones at a loss on the twentieth still holds 100 afterwards. Selling 500 and repurchasing 300 leaves an investor 200 lighter, and that portion survives. The withheld amount attaches to the cost of what they bought instead, so 1,000 dollars withheld against a 4,200 dollar re-acquisition produces 5,200 dollars of cost. That figure works on the day the investor disposes of those shares and stays out, reducing the profit or enlarging the deficit they report then. An investor who re-acquired within an IRA receives no such adjustment, and the relief disappears.
●●○

Detail

The wash-sale rule blocks the tax write-off on a stock you sold cheap and bought straight back. It all hangs on one point. Did you actually get out? Sell on Monday, buy on Wednesday, and you hold what you held on Sunday, so the taxman says no for this year. Nobody takes your money, though, so calm down. The loss you were refused gets added to the price you just paid, and on the day you sell for real and stay away, your gain is smaller or your loss is bigger by exactly that amount. That is the payoff, arriving whenever you finally leave. That month runs before the sale as well as after it, which trips people up. Say your broker takes a dividend and automatically spends it on more of the same stock two weeks before you sell at a loss. Those extra units are the buy-back, and they arrived without you pressing a single button. Do the buying back inside a retirement pot and there is nothing for it to stick to at all, so the money is gone rather than delayed, and that is the one you should actually worry about. 😎

Want more? One click digs deeper.

●●●

Analogy

You sign a painting over to a museum. The deed is real, the museum's name is on it, and a gift like that normally comes off your tax bill. The painting stays on your wall, though, under an arrangement that lets you hang on to it for now, so the IRS withholds the deduction until the museum collects. Nothing in your hallway is different, and you have the very thing you gave away. The wash-sale rule reads a share sale the same way, denying an investor who sold and repurchased within a month. The museum turns up one day and that settles it, while the tax office writes the denied amount into what those repurchased shares cost.
Deepest level reached.
●●●

Analogy

Your car gets written off and the insurer values it at 9,000 dollars. You ask to keep the wreck, which is allowed, and the cheque arrives at 7,500, because the scrap on your driveway is worth 1,500 and it never left you. They pay out for what actually went. Sell 500 shares at a loss, buy 300 back, and the taxman docks you by exactly the slice you climbed straight into again. Your insurer squares up that week, while a blocked write-off hides in the price of the stock until you sell it and stay gone. 😎
Deepest level reached.

Unfamiliar concept? A real-world example makes it click — fresh analogies on tap.

AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

The wash-sale rule, codified at Section 1091 of the Internal Revenue Code, disallows a deduction for a loss realised on the sale of stock or securities where the taxpayer acquires substantially identical stock or securities, or enters into a contract or option to acquire them, within the period beginning 30 days before and ending 30 days after the date of sale. The disallowed loss is added to the basis of the replacement securities under Section 1091(d), and the holding period of the disposed securities carries over. Acquisitions by a spouse or by a corporation the taxpayer controls fall within the rule, and under Revenue Ruling 2008-5 an acquisition within an individual retirement account or Roth IRA disallows the loss without any corresponding basis adjustment. The rule applies to losses only and does not restrict the recognition of gains. Digital assets are presently treated as property rather than securities and therefore fall outside Section 1091, a position Congress has repeatedly proposed to alter.

Want Clicked to explain terms like “wash sale” directly in your browser — including on PDFs?

Add to Chrome — Free

50 free Explanations · No credit card required