Tax Minute

YEAR END TAX TIP (12)

Yesterday I mentioned the wash sale rule when you repurchase securities that you had recently sold at a loss. If you sell a stock, bond or mutual fund for a loss and then buy back the identical security within 30-days you can't claim the loss on your tax return. The IRS considers this transaction a "wash sale" because your economic situation really hasn't changed. It's easy to avoid running into the wash sale rules though. You can wait until the 31st day to buy the security back or if it was a mutual fund that was sold you can immediately buy a similar mutual fund that will put you in essentially the same position but not an identical one. The IRS does not have a wash sale rule on appreciated securities. If you have large realized losses that you cannot deduct, it might make sense to sell appreciated securities that you intend to hold for the long term and buy them back immediately so that you can get a step-up in basis which can be helpful in future tax planning, like gifting of assets we will talk about next week.

Sign Up to receive the daily tax minute