This is one of those “there but for the grace of God” stories, although it is not out of the question this tale may be quite germane and helpful to you in your lifetime: it has to do with the wash sale rule.

In case you are unacquainted with this bit of the tax code, it’s pretty easy to understand. Let me offer an example to illustrate its original intent. Let’s say you bought $50,000 of a stock which you intended to hold for a while. Unfortunately, the stock went to $40,000 in value, although you still had every intention to hang on to it. However, the end of the calendar year is approaching, so you decide to sell it, take the $10,000 loss for your taxes that year, and a few seconds later buy the stock back at almost exactly the same price. Thus, you still have the stock but you get to bank the loss straightaway.

Well, you can’t do that. You have to wait at least 30 days before you get back into the stock in order for the tax man to consider it a valid loss. Otherwise, the loss simply gets added back to the basis of your new purchase. In this specific instance, even though you spent $40,000 getting back into the stock, the $10,000 loss would be added to its basis, meaning whenever you sold it in the future, your cost basis would be $50,000. In other words, no harm, no foul. You don’t really make or lose anything, even though you don’t get to enjoy the loss like you intended. Doesn’t seem so bad, right?