What Is a Wash Sale?

A wash sale is a transaction in which an investor sells a losing investment at the end of the calendar year in order to claim a capital loss on their taxes for that year. The investor’s intention is to buy the investment after the new year, preferably at a lower price than when they sold it.
Wash sales are a strategy that investors have used in the past to register a tax loss while reducing their exposure to the risk of holding a specific investment. The wash-sale rule is used by the IRS to eliminate the temptation to sell and repurchase the same security at the end of the calendar year.