Posted on March 01, 2006 at 18:24:58:
Most investors are aware of the “wash-sale” rule: if a security is sold at a loss and repurchased within 30 days, the loss will be disallowed. Is there any way around it?
One solution is to purchase another stock in the same industry, a substantially similar bond or yet another mutual fund and assume that the results will be similar if not identical.
What if, however, you find that the stock you sold suddenly comes out with good reports and is expected to rise or surge? What happens if you buy the same stock back within 30 days? All is not lost. The disallowed loss is added to the shares you bought again and reduces the gain when you sell.
In dollars and cents: say you bought the stock at $40 and later sold at $30. You buy it back at $35 and later sell at $60. The $10 loss on the original sale is disallowed, but it is added to the basis at repurchase. When you sell at $60, the gain is only $15.