Wash Sale Rule.

In plain English

The wash sale rule is an IRS rule that disallows a capital loss if you sell a security at a loss and buy a substantially identical security within 30 days before or after that sale. That creates a 61-day window (30 days on each side, plus the sale day) where rebuying the same thing kills the tax benefit. The disallowed loss is not gone forever. It gets added to the cost basis of the new shares, so you recover it later when you eventually sell those. The rule exists to stop people from selling just to bank a loss while never really giving up the investment.

01Why it matters

If you harvest a loss to cut your taxes and accidentally rebuy too soon, the IRS throws out the deduction, so one careless trade can erase the whole tax benefit you were after.

02The math, step by step

On December 1 you sell a fund at a $2,000 loss to harvest it. On December 20, just 19 days later, you rebuy the same fund. The wash sale rule disallows the $2,000 loss for now, and instead adds it to the cost basis of your new shares. Waiting more than 30 days, or buying a similar but not identical fund, would have preserved the deduction.

03What this is NOT

04Receipts

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