The Wash Sale Rule prevents you from claiming a tax loss on an investment if you buy a substantially identical investment within 30 days before or after selling the original.
In Depth
This IRS rule is designed to stop people from selling an investment just to claim a tax loss, only to immediately buy it back. If you sell a stock at a loss and then buy the same or a very similar stock within 30 days (before or after the sale date), the loss is disallowed for tax purposes. Instead, the disallowed loss is added to the cost basis of the new shares, which can reduce your taxable gain when you eventually sell those new shares. This rule applies to all types of securities, including stocks, bonds, and mutual funds.
Example
If you sell 100 shares of XYZ stock at a loss on October 1st and then buy 100 shares of XYZ stock again on October 15th, your loss from the October 1st sale would be disallowed under the Wash Sale Rule.