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What is a Wash Sale?

Updated: Nov 16, 2017

A wash sale can ONLY occur when a security is sold for a LOSS. Therefore, if there is no loss, there can be no possibility of a wash sale.


So what is a wash sale? If there is a LOSS on the sale of a security and there is ALSO a purchase of that security 30 days BEFORE the loss sale OR 30 days AFTER the loss sale, there is a wash sale.


What are the consequences? The LOSS cannot be deducted.


What happens to the loss? The LOSS is added to the cost of the first purchased security within the "wash sale period."


So if your loss is $2,500 and you purchase replacement shares within the "wash sale period" for $20,000 then the cost basis for gain or loss is not $22,500 (the $20,000 purchase + the wash sale loss of $2,500).

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