What term describes a sale of stock or securities at a loss within 30 days before or after acquiring substantially identical stock or securities?

The term that refers to a sale of stock or securities at a loss within 30 days before or after acquiring substantially identical stock or securities is known as a wash sale. This concept is vital in the context of tax law, particularly as it aims to prevent taxpayers from claiming a tax deduction for a loss on an eventual stock sale while still maintaining a similar investment position.

In a wash sale, the IRS disallows the deduction of the loss, treating it as if the taxpayer had not actually sold the stock for a loss, since they cannot effectively exit their investment position. The loss from the sale is added to the cost basis of the newly acquired stocks, which means that it can potentially be realized in the future when the stocks are sold. Understanding the wash sale rule helps taxpayers plan their trades and tax strategies effectively to avoid unexpected disallowances of tax losses.

Other terms such as tax loss sale, capital loss, and loss carryover refer to different concepts in tax treatment. Tax loss sales generally refer to sales intended to recognize a tax loss intentionally, while capital loss pertains to a loss resulting from the sale of an asset. Loss carryover involves the practice of applying a tax loss in one tax year to offset income in future years. While these terms