Two ideas that always travel together: tax-loss harvesting (deliberately using a loss to cut your tax bill) and the wash-sale rule (the rule that stops you from abusing it).
When you sell an investment for less than you paid, you realise a capital loss. In many tax systems, that loss can be subtracted from your capital gains, so you owe tax on the net figure. Tax-loss harvesting just means intentionally selling a loser to book that loss and offset gains elsewhere.
Example (illustrative): if you realised a gain of one round number on one holding and a loss of the same round number on another, the two can cancel out and leave little or no taxable gain — the exact effect depends entirely on your own country’s rules.
Here’s the trick a tax authority has to prevent: sell a stock at a loss on Monday to claim the tax benefit, then buy the very same stock straight back on Tuesday so you still own it. You’d get the deduction without ever really changing your position. The wash-sale rule exists to block exactly this.
In the US, if you sell a security at a loss and buy the same — or a “substantially identical” — security within 30 days before or after the sale (a 61-day window centred on the sale), the loss is disallowed for now. You don’t lose it forever: it’s added to the cost basis of the shares you repurchased, so you recover the benefit when you eventually sell those. The 30-day window and the “substantially identical” test come from IRS Publication 550. The practical effect: to harvest a loss cleanly you generally can’t hop straight back into the identical position.
The 30-day window is US-specific. Other countries have their own versions of the same anti-abuse idea — the UK, for instance, has “bed and breakfasting” rules with different timings — and some have no such rule at all. The concept (you can’t claim a loss while effectively keeping the position) is common; the exact days and definitions are local.
Tax-loss harvesting is a real technique, but it’s easy to over-engineer, easy to trip the wash-sale rule by accident (for example, an automatic dividend reinvestment counting as a repurchase), and it only defers rather than erases tax. This lesson explains how the mechanism works; it is not advice to do it. Selling something you’d otherwise keep, just to book a loss, can easily cost more than the tax it saves. Talk to a qualified tax professional before acting.
This lesson is general investor education, not tax or investment advice, and it does not recommend harvesting losses. The 30-day wash-sale window and the “substantially identical” test are US specifics (IRS Publication 550); other countries have different anti-abuse rules or none. Confirm your own country’s rules with a qualified tax professional before acting.
In the US, if you sell a security at a loss and buy the same or a “substantially identical” one within 30 days before or after, you can’t claim that loss on your taxes for now — it’s added to the cost basis of the shares you rebought instead (IRS Publication 550).
No — in the US it’s deferred, not destroyed. The disallowed loss increases the cost basis of your replacement shares, so you get the benefit when you eventually sell those. Other countries handle this differently.
This lesson explains the mechanism but doesn’t recommend it. It’s easy to over-engineer, easy to trip the wash-sale rule by accident, and it only defers tax. Selling something you’d otherwise keep just to book a loss can cost more than it saves. Ask a qualified tax professional.
Investor education only — not investment advice, and never a promise of profit. Every investment can lose value.