Definition
Selling an investment at a loss to offset taxable gains (plus up to $3,000 of ordinary income per year), then reinvesting in something similar but not substantially identical. The wash-sale rule voids the loss if you rebuy the same security within 30 days.
Why it matters
Harvested losses are one of the few legitimate ways to turn a down market into a tax asset, and unused losses carry forward indefinitely. The trap is the wash-sale rule, which quietly disallows the loss when automatic reinvestment buys the position back too soon.
Example
An investor sells a fund at a $5,000 loss in a downturn and immediately buys a different broad-market fund, staying invested. The loss offsets $5,000 of gains elsewhere at tax time; had they rebought the same fund within 30 days, the deduction would have vanished.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.