Definition
An IRS rule that disallows a capital loss if you buy the same or a substantially identical security within 30 days before or after the sale. The disallowed loss is added to the cost basis of the replacement shares, and the rule reaches across your accounts, including IRAs.
Why it matters
The rule is the main trap in tax-loss harvesting: automatic dividend reinvestment or an impatient rebuy can quietly void the deduction you sold to capture. Swapping into a similar but not identical fund keeps you invested without triggering it.
Example
An investor sells a fund on December 15 to book a $2,000 loss, but dividend reinvestment buys the same fund back on December 28. The loss is disallowed for this year and folded into the new shares' basis; buying a different broad-market fund instead would have preserved the $2,000 deduction.
Put it into practice
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.