An illegal transaction which involves the sale of a security such as stock, bonds, or options, at a loss and the repurchase of the same security or an identical one within a short period of time (30 days), in the hope that it will get back to its previous level. This strategy is used by investors and traders in a bid to claim additional tax benefits.
It is usually implemented by purchasing a security through one broker and selling it through another and then claiming that a loss was realized on the sale. This allows an investor to use the “unrealized” loss to claim a tax reduction. The wash sale is not only forbidden by law, but is also no longer practical due to the enforcement of the 30-day wash rule.
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