What Is the Wash Sale Rule? - YouTube

Hi everyone! I'm Ara Oghoorian with ACap Advisors  and Accountants, and welcome to another edition of  

the ACap ReCap, where we go behind the blog and  answer some of your most important questions.  

And today we're going to talk about the wash-sale  rules. But before we begin, remember to subscribe,  

like and share our channel, and if there's a  topic, that you want us to cover, be sure to send  

us a message or include it in the comments below,  and we'll talk about it in a future episode.

One of the most common tax saving strategies  is tax-loss harvesting. Tax-loss harvesting is  

intentionally selling an asset at a loss, and  then deducting that loss on your tax returns.  

However a lot of people getting snared in the  wash-sale rule. Today we're going to talk about  

what is the wash-sale rule, and how you can avoid  it. Simply put, a wash-sale rule is not being able  

to deduct a realized loss on an investment on your  tax return. Obviously, no one likes to lose money  

on an investment, but there are times, when you  buy an investment, then it goes down in value.  

So, as I mentioned earlier, one of the common  strategies for tax savings is tax-loss harvesting:  

intentionally selling that investment and then  taking that loss on your on your tax return. So,  

let's use an example, let's assume  you bought a stock for a $100 a share,  

and now the price has gone down, and it's worth  $80 a share. Well, if you don't sell that stock,  

you have what's called an unrealized loss: you  haven't realized it, because you haven't sold it.  

But if you sell that stock and now you have a  $20 loss on that stock, you can deduct that on  

your taxes, however you cannot buy that stock back  again within 30 days, because if you do, then you  

are subject to the wash- sale rule. So you have  to wait at least 31 days, before you can buy that  

stock back again, so that you're not subject to  the wash-sale rule, and you're able to deduct that  

$20 loss on that sale. The wash-sale rule goes  further by saying you cannot purchase the stock  

30 days beforehand before your sell either. Also  you cannot trade substantially identical stock  

that's similar to the stock, that you sold. Also  you can't trade in an options contract or any  

other contract, that's substantially similar to  the investment, that you sold. And also it cannot  

be in any type of retirement account, so you can't  sell the stock at a loss in your brokerage account  

and then repurchase the same stock or identity  similar stock in your IRA or your traditional,  

your Roth IRA or a retirement account. There  are two ways you can tell whether or not you've  

been subject to the wash-sale rule: the first  method is to log into your brokerage account,  

whichever brokerage account you use, and look at  the realized gain and loss, and on the realized  

section you'll see, you may see a little "w", that  depicts a wash-sale, meaning you have been subject  

to the wash-sale. The second way you can tell is  when you get your 1099 at the end of the year,  

usually late January, early February, that  shows all the transactions for the prior year,  

you'll also see a little "w" next to any losses,  that you have. If you do see that, that means  

you've been submitted to the wash-sale rule for  that one particular transaction. As a CPA, one  

of the most common things I see on day trader's  1099 tax forms is that they've been subject to  

the wash-sale rule. So, a lot of times people have  a lot of losses throughout the year, and then they  

think they can claim it, but then they realize, or  I I realize after telling the bad news, that they  

cannot deduct those losses, because they've been  subject to the wash-sale rule. So, the best way  

to avoid the wash-sale rule is, if you're going to  sell an investment at a loss and you want to take  

that loss on your taxes, wait at least 31 days,  before you buy that investment again and make  

sure you do not have not bought that investment  at least 30 days prior to you selling it, as well.