In short
A wash sale occurs when a taxpayer sells securities at a loss and buys substantially identical securities within 30 days before or after the sale. The loss is disallowed and added to the basis of the new shares.
Key takeaways
- The loss is deferred, not lost.
- The holding period of the old shares carries over to the replacement shares.
- Gains are not affected by the rule.
Example
Shares sold at a $4,000 loss are bought back 10 days later for $12,000; the new basis is $16,000.
Where it's tested
TCP: Individual Tax Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer sells stock at a $10,000 loss on December 10 and repurchases the same stock on December 28 of the same year. What is the tax result?