A wash sale is a practice in which an investor sells a security or investment asset at a loss and then immediately repurchases the same or a substantially identical asset. The purpose of a wash sale is to create a tax deduction for the loss without actually changing the investor's position in the market.

Wash sales are not allowed under the tax laws in many countries, including the United States. The Internal Revenue Service (IRS) considers wash sales to be a form of tax fraud and imposes penalties for such transactions.

In the United States, a wash sale occurs when an investor sells a security at a loss and then repurchases it within 30 days before or after the sale. The loss from the sale cannot be deducted from taxes in this case, but instead, it is added to the cost basis of the repurchased asset.

It is important for investors to be aware of the rules regarding wash sales in their respective countries to avoid penalties and ensure proper tax reporting.

A wash sale occurs when an investor sells a security at a loss and then buys the same or a substantially identical security within 30 days before or after the sale. This rule is primarily used in the United States for tax purposes. The IRS prevents investors from claiming a tax deduction on the loss if a wash sale is triggered. Instead, the disallowed loss is added to the cost basis of the newly purchased security, effectively postponing the deduction until the new position is sold.

The wash sale rule is designed to stop investors from creating artificial tax benefits by quickly repurchasing the same asset. Traders and investors need to be cautious with frequent trading, as wash sales can unintentionally affect tax reporting and investment planning.