Portfolio Clarity Foundations
Wash Sale
Definition
A transaction where a holding is sold at a loss and repurchased within a defined window negating the tax benefit of the loss.
Why it matters
It eliminates the tax advantage of realizing a loss for offset purposes if the same or substantially identical holding is bought back too quickly.
What most investors miss
The gap between what the term means and how it is usually applied.
They sell at a loss to offset gains and immediately buy back the same fund. The loss is disallowed and the tax benefit disappears.
How to read it
Check wash sale rules before selling at a loss. The window and definition of substantially identical vary by jurisdiction.
Multi-account lens
How this term reads differently across brokers and accounts.
In a multi-account portfolio wash sale violations can occur across accounts not just within the same account. Selling in one broker and buying in another within the window may still trigger the rule.
Concrete example
What this looks like with real numbers.
Scenario
A US investor sells an S&P 500 ETF at a $5,800 loss on December 18 to harvest the tax deduction. On January 6 they repurchase the same ETF. Under IRS wash-sale rules, the $5,800 loss is disallowed and added to the new position's cost basis — the loss is deferred, not eliminated.
What it reveals
Wash-sale violations are easy to trigger across multiple broker accounts because the 30-day window applies to all accounts, not just the one where the sale occurred.
Related terms
Terms that connect to wash sale.
Tax-Loss Harvesting
The deliberate realization of losses to offset capital gains and reduce the overall tax bill for the year.
Cost Basis
The original purchase price of a holding used to calculate the gain or loss when the position is sold.
Realized Gain
The profit from a position that has been sold and converted to cash.
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