Wash Sale Rules

Top Takeaways

1: Wash Sale Rules Apply to Stocks Sold at a Loss

In general, the Wash Sale rules apply when you sell or trade a stock or security at a loss and within 30 days before or after the sale you purchase the same or almost identical stock back.    This includes if you acquire a contract or option to buy substantially identical stock for yourself or for your IRA.  And it doesn’t matter if the sale and purchase occur in different calendar years.

These rules also apply if your spouse or a corporation you control buys similar stock within the wash sale period.

2: Stock cannot be Substantially Identical

Ordinarily, a stock or security is not substantially identical if the stock is from different corporations.  Bonds and preferred stock of a corporation are generally not considered substantially identical to the common stock of the same corporation.  However preferred stock may be substantially identical if it is convertible into common stock, has the same voting rights as the common stock, is subject to the same dividend restrictions, trades at similar prices and is unrestricted as to convertibility.

3: Wash Sale Rules Disallow the Loss

If these rules apply, add the disallowed loss to the cost of the new stock or securities.  This will be your basis in the new stock. Your holding period for the new stock will include the time you held the stock you sold.  Your holding period is important when it comes to determining whether the stock is eligible for short-term or long-term capital gains tax treatment.

One Response to “Wash Sale Rules”

  1. John S

    This Rule really can kill the daytrader and anyone who doesn’t watch what they are doing. Image owing taxes on large losses( wash sales) and you are actually negative income for the year.

    Reply

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