Wash Sale

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Wash Sale

The buying and selling of the same or a similar asset within a short period of time.

A fictitious type of arrangement whereby a Broker, upon receiving an order from one individual to purchase and an order from another individual to sell a certain amount of a particular stock or commodity, transfers it from one principal to the other and retains the difference in value.

For the purposes of Income Tax, losses on a wash sale of stock may not be recognized as capital losses if stock of equal value is obtained within thirty days prior or subsequent to the date of sale.

Various stock exchanges disallow this practice because the orders to buy and sell should be executed separately to the advantage of each of the broker's clients.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
References in periodicals archive ?
To calculate the total tax basis in shares held after the wash sale, students must calculate the adjusted basis for the repurchased shares as well as the basis in any shares remaining from the initial holdings.
You won't have a wash sale, so the capital loss will be effective.
The (https://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02) wash sale rule kicks in if an investor repurchases the same or a substantially identical investment within 30 days before or 30 days after selling the original investment at a loss.
Generally, a "wash sale" occurs when a taxpayer sells or otherwise disposes or stock or securities at a loss and buys back or otherwise acquires substantially identical stock or securities within 30 days before or alter the sale.
Part I of this Note will provide an introductory explanation of tax loss harvesting, followed by an introductory explanation of the Wash Sale Rule in Part II.
Wash Sale Rule: If you sell a stock or bond and then buy it (or something very similar) back within 30 days, IRS may take away any tax deduction you attempt to take: the "wash sale" rule.
If the client follows a "buy-and-hold" strategy--which is consistent with the professional money manager's belief in not selling during market downturns--the goal is to sell these shares without triggering the IRC section 1091 wash sale rule.
When a loss from a wash sale is disallowed, the deferred loss is added to the basis of the newly purchased securities.
Because of automatic reinvestment, it is possible that a sale of fund shares at a loss can result in an unintended wash sale.
There are several ways to avoid a wash sale. One is to immediately invest in something different from the security you sold.
A taxpayer can use a wash sale to generate long-term capital gain treatment should the stock increase in value.