How to Avoid Wash Sales

Save

A wash sale occurs when you sell a stock that you have taken a loss on and then repurchase the same stock within 31 days. To qualify as a wash sale, the new stock purchase must be substantially identical to the stock sold. For example, if you sold 100 stock in Company A and then purchased 100 stock in Company A, but also if you sold 100 shares in a mutual fund and then purchased 100 shares in a mutual fund with the same index. A loss in stocks can normally be used as a deduction on your taxes but this does not occur in the case of a wash sale. When you engage in a wash sale the loss is added the base value of the replacement stock; this means that when you sell the replacement it is adjusted to account for your previous loss.

Track the days since you sold stock at a loss carefully to ensure you do not accidentally repurchase it within the 31 day limit.

Sell the stocks that have lost value in December and do not repurchase them until 31 days have past. This will allow you to take advantage of the tax deductions for losses when you file taxes for that year.

Purchase an alternate stock that tends to follow the same pattern as the one you sold instead of repurchasing the same stock. This avoids the condition of the purchase being substantively the same but is risky because there is no guarantee of the two stocks going in the same direction.

Tips & Warnings

  • Take advantage of wash sales to defer tax deductions if appropriate. Wash sales only apply to losses, not to gains.
  • A contract or option to purchase a substantially identical stock within 31 counts as a wash sale even you do not actually purchase the stock within the 31 days.

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!