What is wash sale? Tax benefits

What is wash sale? A concept which is widely popular amongst investor.Wash sale is a transaction in which an investor tries to take maximum tax benefits by selling a losing security at the end of a calender year so they can claim a capital loss on taxes that year.

Investor with an intent to rebut the security again even at lower cost.

This is the way investors have saved themselves from the tax loss without losing on the opportunities they own in a particular share or security.

Keypoints from the blog

  1. Understanding a wash sale

1. Understanding a wash sale

Wash sale is a scenario which takes place when an investor sells a security in loss to take tax benefit and secure them from taxes.

IRS made a rule for all the investors that selling a security will not allow the investor to rebuy it or any similar one for next 30 days.

Wash sale works when a country law gives permission to user for tax deductions if they have losses in securities held within the same year.

It is having three part. At first user sells the securities which are in loss at or end of the year. Second is the sale of the securities which allows them to legally claim on their tax return as a reduction of their earning for that year. Third part is investor looks to rebuy the securities at the start of new year at lower rates than they sold previously.

Example : Let’s assume investor B is having a total capital gain from the selling of a stock 20,000$. Now he is in the highest tax bracket and he have to pay 20% capital gain tax, 3000$ to government. Let say he sells a xyz security at a loss of 7000$. His net capital gain is now 20-7 = 13000$. This means now he have to pay tax on 13000$.

Hope you got to learn everything from wash sale, stay tuned for more upcoming informational blogs.


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