Wash Sale Rules

An investor who has generated capital gains in 2021 may offset these gains by selling other securities that generate a capital loss. If your capital losses exceed your capital gains, you may deduct your net loss dollar-for-dollar against ordinary income up to $3,000 annually. Any excess capital losses may be carried forward indefinitely to future tax years. Remember, however, that the wash sale rule states that you may not take a loss if, within a period beginning 30 days before you sell your security and ending 30 days after that date (a period covering 61 days), you have acquired the same or substantially identical securities. If a wash sale occurs, your basis in the newly acquired position is increased by the amount of any disallowed loss on the original security. The loss would then be deferred until there is a sale or other disposition of the newly acquired position. If you are considering selling an underwater position, but want to continue to hold that specific security in your portfolio throughout the 61-day period, an alternative strategy would be to purchase additional shares of the position at least 31 days prior to your anticipated sale of investment and sell the original shares for a loss 31 days later. An alternative to this strategy might be to purchase an ETF or stock with similar sector exposure to an individual stock position that you sell at a loss. You could then sell that position and buy back the original after 30 days. Keep in mind for 2021, your last day to purchase additional shares of an investment you expect to sell was Tuesday, November 30th. The last day to sell a security for a loss will be Friday, December 31st. The first day you can buy back after a December 31st sale is Tuesday, February 1st, 2022.