Definition:
You cannot deduct losses from sales or trades of stock or securities in
a wash sale.
A wash sale occurs when you sell or trade stock or securities at a loss
and within 30 days before or after the sale you:
- Buy substantially identical stock or securities,
- Acquire substantially identical stock or securities in a fully
taxable trade, or
- Acquire a contract or option to buy substantially identical stock or
securities.
If you sell stock and your spouse or a corporation you control buys
substantially identical stock, you also have a wash sale.
If your loss was disallowed because of the wash sale rules, add the
disallowed loss to the cost of the new stock or securities. The result is
your basis in the new stock or securities. The effect of this adjustment
is to postpone the loss deduction until the disposition of the new stock
or securities. Your holding period for the new stock or securities begins
on the same day as the holding period of the stock or securities sold.
Example 1. You buy 100 shares of X stock for $1,000. You
sell these shares for $750 and within 30 days from the sale you buy 100
shares of the same stock for $800. Because you bought substantially
identical stock, you cannot deduct your loss of $250 on the sale. However,
you add the disallowed loss ($250) to the cost of the new stock ($800) to
obtain your basis of the new stock, which is $1,050.
