Glossary
Wash-Sale Rule
The wash-sale rule is a tax rule that disallows claiming a capital loss on a security sold at a loss if the same or a substantially identical security is bought within 30 days before or after the sale.
The window is 61 days total, it counts purchases in other accounts — including IRAs and a spouse's accounts — and automatic events like dividend reinvestment can trigger it accidentally. A disallowed loss is not destroyed in most cases: it is added to the replacement shares' cost basis, deferring the benefit (except when the replacement lands in an IRA, where it is lost for good).
Why it matters in practice
The rule is the guardrail around tax-loss harvesting: sell the loser, but replace it with something similar rather than identical — a different fund tracking a different index, for example — to stay invested without voiding the loss. "Substantially identical" is not sharply defined for funds, so conservative substitutions and paused reinvestments during the window are the standard hygiene.
Related terms: Tax-Loss Harvesting · Capital Gain · Cost Basis · Dividend