The tax code is constantly changing. Sometimes you can get a leg up on next year’s tax changes by taking advantage of any current favorable tax code.
In this case, it involves selling losing investments for a tax deduction. The goal, of course, is to lower your tax bill at the end of the year. Right or wrong, this strategy can fail if you don’t know the wash sale rule.
The Wash Sale Rule
The concept is fairly simple. You own a stock (bond or fund) that drops in value. The tax code may allow you to deduct that loss, but only if you sell the stock. Which is the problem, because you really want to keep it. So you come up with this diabolical scheme to sell the stock for the tax deduction and then buy it back. Continue Reading…