How do I avoid a wash sale on a stock?

One way to avoid a wash sale on an individual stock, while still maintaining your exposure to the industry of the stock you sold at a loss, would be to consider substituting a mutual fund or an exchange-traded fund (ETF) that targets the same industry. ETFs can be particularly helpful in avoiding the wash-sale rule when selling a stock at a loss.

What is a wash sale rule?

What the Wash Sale Rule Is The wash sale rule states that if you buy or acquire a substantially identical stock within 30 days before or after you sold the declining stock at a loss, you generally cannot deduct the loss. Essentially, a wash sale occurs when you sell a security at a loss and then purchase the same security again in a short period.

How can investors avoid the wash-sale rule?

To avoid the wash-sale rule, one strategy that investors can employ is known as specific share identification. This is an investment accounting strategy where an investor holds multiple shares of a single stock that were bought at different times and different prices.

Should you trigger a wash sale in your investment account?

If you take this approach, it is important to be mindful that you do not accidentally trigger a wash sale in your investment account. Wash-sale rules prohibit investors from selling a security at a loss, buying the same security again, and then realizing those tax losses through a reduction in capital gains taxes.