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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Wash Rule

Definition:

A rule that says you should shower regularly—with soap, please. This rule also says you cannot sell a stock and then buy it back within 30 days, claiming it as a loss with the IRS to pay lower taxes

Example

You bought Netflix at $400 a share in October. It's now December 27th and you want to sell it here at $320 and take the $80 a share loss to make up for your gains that you realized by selling GOOG and YHOO at a tidy profit. It's smart tax planning so you sell. 

New Year's Eve happens and you get anxious that Netflix is going to skyrocket in the next week. So you buy the same amount you sold January 15th. Bad news for you. You don't get to deduct the $80 a share loss you realized December 27th because you effectively "washed" that sale.