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Wash sale rule: year-end tax strategy

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Naturally, you might sell off stock losers now to offset capital gains realized earlier in the year. But if you think a stock will rebound, you might want to reacquire it shortly after selling it.

Strategy:
Watch out for the “wash sale” rule. This rule says you can’t deduct the loss from a sale of securities if you buy “substantially identical” securities within 30 days of the loss sale. Instead, the loss is added to your basis in the new stock.

You can avoid the wash sale rule by waiting at least 31 days before you buy back the same stock. Keep an eye on the calendar to secure a loss for 2009.

Alternatively, you might use the “double up” strategy: Keep the stock and buy more shares of the same stock now. Then wait at least 31 days to sell the original block of shares. By using this technique, you acquire the new shares at a low price and preserve a tax loss for the old shares.

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