Wash Sale

When an investor executes simultaneous buying and selling orders from different brokers to artificially create an appearance of activity in the stock, it is known as a wash sale. It is an illegal form of manipulation.

Investors also attempt to do so in order to report a tax loss without losing their position in a stock. For example, an investor may currently have a 20% loss on XYZ. He still believes XYZ is a good investment and sells XYZ at year end in order to report a tax loss while buying it back. Due to the IRS 30-day wash sale rule, the investor will not be able to report a tax loss on his position if he buys it back before 30 days have elapsed after his sale.

Related Terms

Popular Articles