Question

Regarding the wash sale rule, which of the following statements is correct?

A) The wash sale rule applies only if a taxpayer sells stock at a loss.
B) The wash sale rule applies if a taxpayer sells or exchanges stock at a gain.
C) The wash sale rule applies if a taxpayer sells or exchanges stock at a loss and acquires substantially identical stock within 30 days before or after the sale.
D) The wash sale rule does not apply to stock transactions.

Answer 1

Statement C is correct as the wash sale rule applies to taxpayers selling stock at a loss and acquiring similar stock within a 30-day window. This rule prevents claiming artificial tax deductions.

Step-by-step explanation:

Regarding the wash sale rule, statement C is correct: The wash sale rule applies if a taxpayer sells or exchanges stock at a loss and acquires substantially identical stock within 30 days before or after the sale. This tax rule prevents taxpayers from claiming a tax deduction for a security sold in a wash sale. The rule is designed to discourage investors from artificially creating tax deductions by selling securities at a loss and quickly repurchasing them.