ASK KIM
Don't Get Soaked by the Wash Sale Rule
by Kimberly Lankford

If I sell a stock for a loss to offset some gains, do I have to wait a certain period of time before I can re-buy that stock?

Yes, you can't deduct the loss if you buy the same stock within 30 days of selling it. You also can't deduct the loss if you purchased the stock within the past 30 days. It's called the "wash sale" rule.

If you think the stock will eventually rebound, it's a good idea to keep an eye on the calendar before buying it back.

The good news is that if you do buy the stock back within 30 days, you don't lose the loss forever. A loss denied by the wash-sale rule is added to the cost basis of the newly purchased shares. That will lower your tax bill when you eventually sell the repurchased shares.

For example, say you bought 100 shares of Fancy Stock for $1,000 and sold them for $750. Less than 30 days later, you think Fancy Stock is poised for a take-off and you can't wait any longer to buy 100 shares at $800. You can't deduct the $250 loss in the year of the wash sale, but you can add it to your basis. When you finally sell Fancy Stock, your gain or loss would be calculated using an adjusted basis of $1,050 ($800 plus $250).

But remember, it's never a good idea to let the tax-planning tail, wag the investing dog. You should have better reasons for selling a stock or mutual fund.

Nevertheless, now is a good time to comb through your portfolio and consider other tax planning moves before the end of the year.