Wash Sale Rule
An IRS rule disallowing the recognition of a capital loss when substantially identical securities are repurchased within 30 days before or after the loss-generating sale.
Detailed Explanation
IRC Section 1091 prevents tax-loss harvesting via paper losses on positions you intend to keep holding. The disallowed loss is added to the basis of the replacement security and the holding period rolls over. Wash sales triggered across IRA and taxable accounts permanently eliminate the loss (it cannot be added to the IRA position basis). Cryptocurrency is currently not subject to wash sale rules under the literal statute, though pending legislation has proposed extending it to digital assets.
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Learn about Tax Planning & StrategyRelated Terms
Tax-Loss Harvesting
A strategy of selling investments at a loss to offset capital gains and up to $3,000 of ordinary income annually.
Capital Gain
The profit realized from the sale of a capital asset such as stock, real estate, or cryptocurrency, taxed at preferential rates if held longer than one year.
Form 8949 (Sales and Other Dispositions of Capital Assets)
The IRS form used to report each individual sale or disposition of a capital asset, with totals flowing to Schedule D.
Tax Basis
The amount of investment in an asset for tax purposes, used to determine gain or loss when the asset is sold or otherwise disposed of.
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