Wash-Sale Rule

Without this rule, an investor could sell an investment to realize a tax loss and immediately buy it back, keeping exactly the same position while lowering their tax. The rule prevents this.

For example, an investor sells shares at a loss of 1,000 and buys the same shares back two weeks later. The 1,000 loss cannot be claimed now. Instead, it is added to the cost basis of the new shares, so the loss is postponed until those shares are sold.

The 61-day window runs from 30 days before the sale to 30 days after it. Purchases in other accounts, including some retirement accounts and a spouse's accounts, can trigger the rule, and buying options on the same shares can count too.

The rule makes tax-loss harvesting more complex. Investors often replace a sold fund with a similar but not substantially identical one, such as a fund tracking a different index, to stay invested. Other countries have similar provisions; the United Kingdom, for example, has a 30-day rule for matching share sales and purchases.