Putting an End to Wash Sales

On March 15, 1817, the New York Stock Exchange announced a ban on wash sales, which are technically fictitious sales of stocks by people who don’t even own the stocks. Even though the ban is announced in 1817, the practice of wash sales continues for several decades. There are typically two reasons wash sales occur: either to manipulate the price of stocks or to claim a tax deduction on the loss and repurchase the stock at a lower price. Since the 1800s, many laws have been passed to crack down on traders engaging in wash sales.

In the U.S., a wash sale is detected by the selling or buying of a stock or security at a loss within 30 days of buying identical stocks or securities or acquiring identical stocks in a trade. This policy includes the 30 days prior to the sale as well as the 30 days following the sale. If you conduct a wash sale, there are two consequences: you cannot claim any loss you sustain on the sale and your holding period for replacement stock includes the holding period of any stock you sold.

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