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Articles: Securities Sales: STAY DRY

If you sell securities, you could be soaked by the “wash sale rule” if you are not careful.  How it works: The wash sale rule prohibits you from claiming a tax loss on the sale of securities if you acquire “substantially identical” securities within 30 days of the sale.

But it is relatively easy to avoid the wash sale rule.  One obvious strategy is to wait at least 31 days before you repurchase the same securities. Alternatively, you can double up on your investment.

Example:  Ms. Smith bought 100 shares of XYZ stock at $50, and now is selling at $40. Instead of selling the shares, she buys 100 more shares of XYZ stock at $40.  Then she waits more than 30 days and sells the first 100 shares at $42.  Result:  Smith has a deductible loss of $800 and now holds 100 shares showing a paper gain of $200.

If a tax loss is denied because of the wash sale rule the disallowed amount is added to the basis in the stock.

Of course, other economic factors beside taxes should enter into your investment decisions.  But do not forget about this tax trap.

This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.


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