Wash Sale Rule

An Internal Revenue Service (IRS) policy that forbids a taxpayer from claiming a tax deduction for a loss on a securities sold in a wash sale. A wash sale is one that takes place when a person sells or trades an asset at a loss and then purchases the same stock or security, or obtains a contract or option to do so, within 30 days before or after the sale. The purpose of the wash-sale rule is to discourage individuals and corporations from making an investment loss in order to claim a tax deduction while effectively keeping their stake in the securities.