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The Tax Law’s “Wash-Sale Rule”

With year-end just around the corner, you may be thinking of ways to reduce your taxes. If you own stocks (or mutual funds) that have declined in value, selling shares could produce a capital loss that you can use to offset gains on stock sales earlier this year.

However, suppose you still believe a particular stock has potential for future growth. Couldn’t you sell the stock and then immediately repurchase shares in the same company while the price is still low? That way, you could claim the capital loss on your tax return and still own the stock.

Unfortunately, the IRS limits the use of this strategy. The tax law’s “wash-sale rule” prevents you from claiming a capital loss on a securities sale if you buy “substantially identical” securities within 30 days before or after the sale. To claim the loss, you’d have to wait more than 30 days after your sale to repurchase stock in the company.

Original content provided by: Client Line Newsletter