By Indexopedia Research Team | May 14, 2024 | In
Investing in the stock market is a way to build wealth and create passive income. However, investing comes with risk, which can look like the value of investments plummeting when the market isn’t doing so well. Sometimes, investors can benefit from market losses through a tax break called the capital loss tax deduction. Some investors lose out on this tax break when they do what’s called a wash sale. What Is a Wash Sale? When you sell a security that has declined to take advantage of the tax benefit and then buy a security of the same or similar value, that’s known as a wash sale. The said tax benefit is the capital loss tax deduction, when you deduct securities that have lost value from your tax return. The IRS allows individuals to deduct up to $3,000 in net capital losses annually. Any additional losses can be carried forward into future years. Some investors engage in wash sales intentionally while for others, it’s an oversight. Either way, wash sales could lose some of the capital loss tax benefits. It’s important to note that wash sales