Definition of Wash Sale

Wash sale is the sale of a security at a loss and the subsequent repurchase of that security or of a security that is substantially the same within 30 days of the sale. The repurchase disallows the claim of the loss for tax purposes.

Applying "Wash Sale" to Securities Exams:

Investors who have a capital loss can deduct those losses against their capital gains for the year in which they are realized. If the investor has a net capital loss the investor may deduct $3,000 against ordinary income and carry the remaining amount forward. Deducting it against future gains (unlimited amount) or against ordinary income ($3,000 per year) until the amount of the loss is used up. If an investor sells a security at a loss and repurchases that same security within 30 days or purchases a call option or a substantially similar security the loss will not be allowed to be claimed for tax purposes under the wash sale rule.

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