Wash Sale Rule
Yesterday, I talked about selling losing stocks so we can realize a capital loss to reduce taxes. However, we cannot just sell the stocks and buy them back just to get the tax benefits because it will violate the wash sale rule. This rule prevents us from taking a tax loss on a security sale if we bought the same or substantially identical stock 30 days before or 30 days after the sale.
If you do end up buying the stock back within 30 days however, the loss can be applied to the cost basis of the purchase. Let me illustrate.
Remember the ETrade (ETFC) that I mentioned about yesterday? Let’s say I sold all my shares at $4 per share after reading the article from this blog for a loss of $12,000 and I bought 1000 shares back at $3.80 today. The wash rule disallows me […]
Original post by MoneyNing