Beware the IRS Wash Sale Rule
Despite noteworthy gains in the U.S. labor market, 2022 has been fraught with economic uncertainty. Everything from high inflation to steep stock market declines, including recent lows for the S&P 500, has spurred some investors to reevaluate their market positions.
Maybe you're in that boat — focusing on offsetting losses and weighing whether to sell some declining stocks or other securities.
If so, you'll want to tread carefully, so as not to run afoul of the wash sale rule.
What is the Wash Sale Rule?
A wash sale occurs when you sell or trade a security at a loss, and then repurchase or acquire the same security within a short period of time. And it's important. Then, if you have any leftover losses, you can deduct up to $3,000 of them from your ordinary income. Plus, any remaining losses can be carried over and used for the next tax year. As a result, selling off securities at a loss to reduce other taxable gains or income – commonly referred to as "" – is a popular tax planning strategy.
