JCAP101.com

Wash Sales occur in financial markets when an investor sells a security at a loss and then repurchases the same security, or one substantially identical, shortly thereafter. This practice is often used to realize a tax-deductible loss while maintaining the same investment position. However, it is typically viewed as a strategy to artificially create tax benefits without a genuine change in investment exposure. Regulatory bodies, such as the IRS in the United States, have specific rules against wash sales to prevent tax evasion and ensure the integrity of financial reporting. These rules disallow the deduction of losses from such transactions for tax purposes and require adjustments to be made to the cost basis of the repurchased security.