Booyah Breakdown: It's a Wash

This week's Booyah Breakdown will address a plethora of your burning questions. We're hitting on that onerous wash-sale rule, private equity and M&A stocks. So enjoy the smorgasbord!

And if anything else perplexes you, send in a question and we'll take it on.

Cramer talks about selling off a portion of a stock at a loss and keeping the other portion to buy back the same stock later. How does the 30-day rule play into this or any other sale of a stock at a loss? -- A.U.

The 30-day rule, a.k.a. the "wash-sale rule," can make or break your tax situation on the trade. Now remember, Cramer doesn't really think you should worry about taxes when trading, but you should still try to keep the wash-sale rule in the back of your mind.

Basically, the wash-sale rule says that if you sell a security at a loss, you can't deduct that loss on your tax return if you turned around and bought a "substantially identical" security 30 days before or after the sale. And shares of the same stock in the same company are considered substantially identical, according to the IRS (preferred stock is not considered substantially identical to common stock, though).

Why? Because if you buy a stock, sell it at a loss and then buy it back, on paper you're in the exact position you started. You're still holding the same stock that you started out with.

But by selling those shares, you generated a juicy tax loss for yourself. And the government doesn't think you should be able to deduct that loss on your tax return if you haven't really altered your position.

< Previous

1 2

Next >