Tax & regulation
What is the Wash-Sale Rule and how does it disallow tax deductions on habitual re-entries?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The Wash-Sale Rule disallows claiming a tax loss on a security sold at a loss if a substantially identical security is purchased within 30 days before or after the sale.
How it works
The disallowed loss is added to the cost basis of the replacement shares rather than being permanently lost, deferring the tax benefit to a future sale.
An example
If an investor sells a stock at a loss and repurchases the same stock 10 days later, the loss cannot be deducted on that year's taxes under IRS rules.
Risk & limitations
Wash-sale rules apply across accounts including IRAs in some interpretations; consult IRS Publication 550 or a qualified tax professional for your specific situation, as rules can be complex. This describes U.S. federal rules only; Canadian and other non-U.S. investors are subject to different tax/regulatory regimes (e.g., CRA rules, TFSA/RRSP treatment) and should consult a local tax professional.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.