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Here's some background on the rule and answers to common questions about it.

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I want to sell a stock to take a tax loss, but I plan to buy it again because I want it in my portfolio. What are the tax implications? If you sell a security at a loss and buy the same or "substantially identical" security within 30 calendar days before or after the sale, the loss is typically disallowed for current income tax purposes. This is because of the so-called wash sale rule.

What is the IRS trying to accomplish with the wash sale rule? Basically, the wash sale rule is designed to prevent taxpayers from taking losses on securities if they acquire a substantially identical position within 30 days.

How do wash sales work? A wash sale will trigger several consequences. First, if you violate the wash sale rule you can't claim your loss.

Instead, your loss will be added to the cost basis of the replacement purchase. When you sell the replacement stock, you can recognize the previously disallowed loss.

Your holding period for the replacement stock includes the holding period of the stock you sold. This series of trades triggers a wash sale. The holding period of the original shares will be added to the holding period of the replacement shares, effectively leaving you with a long-term position. I want the tax loss, but I don't want to be out of the market for an entire month just so I can avoid the wash sales rule.

You could double up on your position, wait 31 days, and then sell your original loss position. Of course, that means you would be increasing your exposure. But if you don't want to either be out of the market or increase your exposure for a month, you could take the loss and immediately replace the security you sold with a similar but not "substantially identical" investment that suits your asset allocation and long-term investment plan.

That way, while you're harvesting losses to get the tax break, you can better position your portfolio going forward by rebalancing and improving tax-efficiency. Here's a hypothetical example to show how this might work.

Let's say Joan, a single income tax filer, holds position XYZ. The position is part of Joan's overall portfolio plan, which she wishes to maintain.

Joan is reluctant to sell and recognize the loss, especially if it means upsetting her investment plan or being out of or doubling the position for 31 days to avoid the wash sale rule. What can she do? Joan could do a little research to find a suitable replacement. She could simultaneously sell XYZ and purchase ZZZ, avoiding the wash sale rule while maintaining her investment plan. As far as her portfolio is concerned, Joan is in the same financial position after the sale as she was before less commissions or fees.

The scenario would hold true if XYZ and ZZZ were individual stocks in the same industry or mutual funds with similar investment objectives. If I purchase and sell shares of a stock at a loss in one of my Schwab accounts and then repurchase them in another Schwab account, will I still trigger the wash sale rule?

Wash sale rules apply to the investor rather than to a particular account when an investor holds multiple accounts. IRS regulations only require Schwab to track and report wash sales on the same CUSIP number a unique nine-character identifier for a security within the same account.

Individual taxpayers are responsible for tracking sales in different accounts their own and their spouse's for the purposes of the wash sale rule. Does the wash sale rule apply to options, ETFs and mutual funds?

Keep in mind that if the security has a CUSIP number, then it's subject to wash-sale rule reporting. Switching from one ETF to the identical index in another fund or ETF could trigger the wash-sale rule. There are ways around this problem. The same idea could apply to similar, but not substantially identical ETFs. What happens if I sell at a loss in a taxable account and then immediately repurchase it in a retirement account, such as an IRA?

The IRS has ruled Rev. Can I sell at a loss on December 15 in order to harvest losses for the current tax year and then purchase the shares back in early January? Wash-sale rules are not confined to calendar years, so in this situation, your loss would be deferred if you reacquired the position within 30 days. The information provided is for general informational purposes only. Nothing in this article should be considered as an individualized recommendation or personalized investment or tax advice.

The investment and tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment or tax strategy for his or her own particular situation before making any decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

Schwab Equity Ratings use a scale of A, B, C, D and F and are assigned to approximately 3, stocks headquartered in the United States and certain foreign nations where companies typically locate or incorporate for operational or tax reasons. Schwab's outlook is that A-rated stocks, on average, will strongly outperform, and F-rated stocks, on average, will strongly underperform the equities market during the next 12 months.

What is a "wash sale"?

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A Primer on Wash Sales

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Find a branch Contact Us. Midweek Market Trend for June 14, Fed Raises Rates, Sticks With Plans for One More Hike This Year Are bonds signaling a major stock market peak? You can do this in two ways: Select your online service with one of these buttons. Copy the URL in the box below to your preferred feed reader. Key Points The wash sale rule is intended to prevent people from taking losses on securities that they still hold.

If you violate the wash sale rule, your loss will be disallowed. Consult your tax advisor if you have questions. For more details and advice, here are some articles that might prove helpful: Calculate the Cost Before You Sell Harvesting Losses: Making lemonade out of lemons Wash Sales Please try again in a few minutes.

Important Disclosures The information provided is for general informational purposes only.