Wash Sale

wash sale   n.  The illegal buying of stock by a seller's agents to give the impression of an active market.

Wash Sale

An illegal transaction an investor makes by simultaneously buying and selling a security through two different brokers, thereby creating the illusion of activity. Investors do this to try and recognize a tax loss without actually changing their position.

Investopedia Commentary

The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased withing 30 days of sale (before or after sale).

Related Links

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See also: Crystallization, Daisy Chain, Paper Profit (or Loss), Wash, Wash Sale Rule

wash sale

The illegal purchase or repurchase of an asset within 30 days of the sale date of a basically identical asset that was sold in order to take a tax loss. For example, if an investor sold a security at a loss and then immediately repurchased the same security or a basically identical security, the Internal Revenue Service would consider the transaction a wash sale.

Main Entry: wash sale
Function: noun
Etymology: probably from the comparison of such a sale to the act of washing, which does not affect the nature of the thing washed
: a sale and purchase of securities that produces no change of the beneficial owner; specifically : a sale of securities within 30 days before or after the purchase of substantially identical securities
NOTE: Any loss from such a sale is not deductible for most taxpayers under the Internal Revenue Code.