Wash Sales

As investors prepare their taxes for 2011, it is important to keep in mind what a wash sale is and how it effects capital losses. A wash sale is when a security is sold at a loss and the same security or “substantially similar” security is bought back within 30 days. The important key word is “substantially similar”, and unfortunately the IRS is vague on its definition. The IRS has also imposed the wash sale on folks who sell a security and whose spouse or controlled company buys back the same security within 30 days.