Q: Nancy asks, “Derek, how does a “Wash Sale” and why would I complete such a transaction?”
A: Nancy, what a timely question as markets have surged since March? A wash sale occurs when a taxpayer sells stock or securities at a loss and within thirty days before or after the sale buys substantially identical stock or securities. Thus, a taxpayer must wait at least 31 days before repurchasing the stock that was sold.
This subjects the seller to the risk that the price of the stock or security could increase substantially during the time he or she is out of the market. There are a number of strategies that can be used to mitigate this risk, like purchasing similar but not identical stock after the sale.
