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30-day Wash Rule

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The 30-day wash rule is an IRS rule prohibiting the sale and repurchase of a security sold for purposes of claiming a tax loss within a 30-day period. The 30-day wash rule covers a 60-day window, 30 calendar days before and after the sale. The 30-day wash rule was put in place to keep taxpayers from simultaneously selling and repurchasing a substantially identical security, reaping a tax benefit while exposing them to no risk. In order to claim a tax loss, investors must risk the growth of their depreciated asset while not holding it for a time. The 30-day wash rule ensures taxpayers adhere to this exclusionary period or else their tax loss can be disallowed.

Investors should keep in mind that the security bought does not have to be the exact same as the one sold. According to the 30-day wash rule, if an investor repurchases a "substantially identical security", 30 days before or 30 days after the sale, they are in violation of the 30-day wash rule. The 30-day wash rule is in effect regardless of the sequence of the transactions.

For more information on the 30-day wash rule please see IRS publication 550.

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