What is the three-day rule for stocks?

The three-day rule for stocks is one example. According to the rule, investors should wait three days before buying shares whose price has dropped significantly. Investors can often be rattled by news impacting the financial markets and, typically, reacting too quickly to news can cause more damage than waiting.

What happens if I buy a new stock in 30 days?

You won't have bought any new shares within the rule's window. You'll have a tax-deductible loss and still maintain a position in a stock you believe may appreciate in value. For instance, if you bought 200 shares initially, sell only 100. As soon as the 30 days is up, buy 100 more shares to replenish your position.

What is a 30-day capital loss?

Implemented by the IRS, the 30-day rule does not consider another company's securities, bonds and some types of a company's preferred stock "substantially identical" to its common stock.If you sell an investment at a loss, it's called a capital loss and it can be used to reduce your taxable income.

How long after a wash sale can I buy a stock?

Keep in mind that the wash sale rule goes into effect 30 days before and after the sale, so you have a 61-day window to avoid buying the same stock. Alternatively, if waiting 61 days isn't feasible, you can purchase a security that is not substantially identical to the one you recently sold.