Wash sale
TaxesDefinition
IRS rule disallowing the tax-loss benefit when you sell a security at a loss and buy the "substantially identical" security within 30 days before or after. The disallowed loss gets added to the basis of the new purchase, deferring the deduction until you eventually sell that lot.
Applies across all your accounts including IRAs (a wash sale into your IRA permanently destroys the deduction). Workaround: rotate into a similar-but-not-identical ETF (e.g., VTI → ITOT) to keep market exposure while harvesting the loss.
Applies across all your accounts including IRAs (a wash sale into your IRA permanently destroys the deduction). Workaround: rotate into a similar-but-not-identical ETF (e.g., VTI → ITOT) to keep market exposure while harvesting the loss.
Example
You sell SPY at a $5,000 loss on Dec 15 to harvest a tax loss. You buy SPY back on Dec 20. Wash sale: the $5,000 loss is disallowed, added to the new SPY basis. Better: buy IVV or VOO instead — same S&P 500 exposure, different fund, no wash.