What is the wash sale rule?
When you sell an asset that has lost money in a taxable account, you can enjoy a tax benefit. The wash sale rule prevents investors from taking advantage of this benefit by selling at a loss and buying back the same asset.
More specifically, it states that the tax loss is disallowed if you buy the same security, a contract or option to buy the security, or a “substantially identical” security, within 30 days before or after the date you sold the loss-generating investment. The wash sale rule applies to most assets in a brokerage account, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and options.
There are no clear guidelines on what constitutes a “substantially identical” security. Your clearing firm, Apex Clearing Corporation, will make a determination on whether your transactions violate the wash sale rule. If a violation has occurred, you may be required to pay more taxes for the year than anticipated. Check with your tax advisor regarding your personal situation.
Please note that the IRS may consider transactions across multiple accounts (including accounts with other brokerages) that have substantially identical securities when determining wash sales.
Foris Capital US LLC does not provide tax advice or investment advice, and the material contained in this document is for customer disclosure and informational purposes only.
What happens if Apex Clearing Corporation or the IRS determines that my transaction was a wash sale?
In such a case, you can't use the loss on the sale to offset gains or reduce taxable income, but your loss is added to the cost basis of the new investment. The holding period of the investment you sold is also added to the holding period of the new investment. In the short term, you won't be able to use the loss to offset a realized gain or reduce your taxable income.
If you're concerned about buying a potential replacement investment, consider waiting 30 days after the sale date before making another investment. You can also work with a financial or tax advisor for more clarity.
For more information, please see IRS Publication 550
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Foris Capital US, LLC
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Foris Capital US LLC is a broker-dealer registered with the Securities Exchange Commission and a Member of FINRA and SIPC. Foris Capital is a separate entity from Crypto.com, Foris DAX, Inc., and other affiliated Foris companies. Foris Capital does not engage in the sale, transfer or custody of cryptocurrencies or digital assets. Crypto.com is a separate entity from Foris Capital and does not engage in the securities business. Customer balances and crypto holdings held and transacted at Crypto.com and other entities outside of Foris Capital are not covered by SIPC insurance and are separate from securities transactions and holdings at Foris Capital. For further information about Foris Capital, please visit FINRA BrokerCheck. Clearing Services are offered by Apex Clearing, a member of FINRA, and SIPC.