Are you eyeing your portfolio with year-end investment loss harvesting in mind? Before you place those sell orders, take a moment for a brief arithmetic quiz.

  • First question: When does 30 plus 30 equal 61?

    Answer: When you run afoul of the wash sale rules, a section of the Internal Revenue Code that prevents you from claiming a current loss on certain investments you sell, then reacquire within a short time period.
  • Second question: Why the seemingly odd math?

    Answer: In addition to the thirty days before you sell the investment and the thirty days after, the wash sale rules include the day of the sale.

The rules apply to losses generated by transactions involving "substantially identical" stocks and securities, including mutual funds and stock or option grants you receive as part of your compensation. Whether one security is considered substantially identical to another depends on several factors. Generally stocks or bonds in different companies — even those in the same industry — are not substantially identical.

Wash sales can occur when you repurchase the security in your IRA, or when your spouse or a company you control does the buying.

While wash sale rules defer capital losses, in most cases you'll eventually get the benefit, since the disallowed loss is added to the basis of the reacquired securities. The holding period of the original security is also carried over, creating planning opportunities.

Please call for more answers and information about wash sales. We'll help make sure your investment decisions add up.


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