23 Apr How to avoid breaking ‘wash sale’ rules after selling stock

Q. What are the tax ramifications of selling your stock holdings, and then immediately buying them all back?

— Investor

A. Sounds like you are looking to lock in losses due to the recent stock market decline while continuing to own the stock holdings.

Well, you can’t have your cake and eat it too.

This is because of the “wash sale” rule in the tax code, which prohibits an individual from disposing of a security at a loss and repurchasing a “substantially identical” security within 30 days before or after the sale, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

He said if you execute a wash sale, your loss is disallowed and is added to the cost of the newly purchased stock to arrive at your cost basis.

“The wash sale adjustment postpones the capital loss until the disposition of the newly purchased stock,” he said.

For additional information, see IRS Publication 550, “Investment Income and Expenses.”

Unless you wait more than 30 days after selling securities at a loss to repurchase them, you are not permitted to claim those losses, Becourtney said.

“Keep in mind that for federal purposes, a net capital loss after offsetting capital gains is limited to $3,000, with any excess carried forward to future years,” he said. “For New Jersey purposes, a net capital loss is wasted as no carryover is permitted.”

Remember you will also incur brokerage commissions on both the sale and repurchase of the stocks, he said.

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This story was originally published on April 23, 2020.

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