What is the 30-day wash rule?


Quick Answer

A 30-day wash rule is an Internal Revenue Service rule that prevents a taxpayer from claiming a loss on an investment 30 days before or after the deposition or sale of the security, explains Investopedia. The law does not regard securities of companies as substantially identical.

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Full Answer

A 30-day wash rule may also occur where a person sells a security, and either his life partner or a company he runs buys a substantially equivalent security, notes Investopedia. The rule states that the seller may buy or acquire a substantially identical stock or security or acquire a contract or option to buy stock or security.

A company's bonds and preferred stock are also not substantially identical to its common stock, according to Investopedia. However, the preferred stock can be identical to the company's stock if it has the same voting rights or trading price as the company stock.

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