In the US, IRS wash sales rules indicate that a loss in security exchange cannot be claimed tax deductible in the same year income tax filing, if the transaction of purchases & sales takes place within a month.

I am thinking of purchasing new stocks but decide to cut my losses if there is a 10% drop in the stock value but do plan to repurchase the same stocks (because of the companies) and keep them if the value drops further to a 25% loss of the "initial" value.

Other than not able to claim tax deduction for the initial 10% loss in the same year, are there additional downsides for a short-term investment that would further encroach on the return ?

  • 2
    You don't lose the deduction, it's just delayed. The exception is if the "purchase" part of the wash sale is inside a retirement account, where basis doesn't matter.
    – Ben Voigt
    Commented May 20, 2019 at 4:15
  • Thanks. The title and the content have been edited to reflect the concern I have.
    – B Chen
    Commented May 20, 2019 at 12:15
  • Per your edit: Note than you are unable to claim the "tax deduction for the initial 10% loss in the same year" if you do not sell the substantially replacement stock in the year that the loss is realized. The wash sale violation is merely an accounting headache unless the replacement position is carried into the subsequent year. Commented May 20, 2019 at 16:12

1 Answer 1


With the Wash Sale rule, if you sell a security at a loss and buy the same or “substantially identical” stock or security within 30 calendar days before or after the sale, the loss is disallowed for current income tax purposes. If you violate the wash-sale rule, you can’t claim your loss and your loss will be added to the cost basis of the replacement purchase. When you sell the replacement stock, you can recognize the previously disallowed loss.

Unfortunately, many people read the words violate and disallowed and conclude that the ability to deduct loss is lost. It is not. It is merely delayed until a later date.

  • Thanks for the clarification on tax deduction. What are other downsides, if any, of a short-term purchase-sale transaction that would impact the return of the investment?
    – B Chen
    Commented May 20, 2019 at 12:07
  • 1
    Additional commissions is a downside but in this age of discount and free commissions, it can be minimal unless it's a small sized trade. The deferred loss could affect your taxes (loss is delayed until the following tax year). A more significant pitfall is that your timing is off. You close the position and it rebounds sharply before you repurchase. You can get around the wash sale rule by repurchasing a similar but not substantially identical security, say one oil stock instead for another or one major market index instead of another. Commented May 20, 2019 at 12:19

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