What is a wash sale in tax loss harvesting?

Can you explain what a wash sale is in the context of tax loss harvesting?

A wash sale occurs when you sell a security at a loss and then repurchase the same or substantially identical security within 30 days. This can affect your ability to claim the loss for tax purposes.

Why is it important to avoid wash sales when tax loss harvesting?

Avoiding wash sales is crucial because if the IRS identifies a transaction as a wash sale, you cannot deduct the loss from your taxes, which defeats the purpose of tax loss harvesting.

How can I track my trades to avoid wash sales?

You can track your trades using a spreadsheet or financial software that records your purchase and sale dates, ensuring you don't repurchase the same security within the 30-day window.

Are there any exceptions to the wash sale rule?

Yes, there are exceptions, such as if you sell a security in a tax-advantaged account like an IRA, but it's best to consult a tax professional for specific advice.