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<<If the wash rule applies for 30 days, then does that mean that daytrader can not deduct their loss if they bought within 30 days of their sell? If so that's true, how could you ever make money for DayTrading? Your losses are not deductible, and your gains are taxed against you.>>

But think about this for a second...daytraders generally get out of their positions entirely in a short period of time. Minutes. Days. Perhaps weeks. It's only near the end of the year that true daytraders have to be careful of the wash sale rules...when any open transactions might bridge two tax years.

As pointed out in my article on this very subject in the Taxes FAQ area, the wash sale rules become completely moot if the position is closed out sometime during the year, and no "replacement" shares are purchased either 30 days before or after the last loss sale.

So, for example, say you purchase 100 shares of XYZ company on January 10th for $50/share. January 20th, you sell those shares for $30/share. Then on February you repurchase 100 shares of XYZ for $25/share.

That's a wash sale.

But on April 10th, you sell your 100 shares of XYZ for $20/share. And you stay out of the stock within the required 30 day period before or after the loss sale.

Do you STILL have a wash sale? Sure. Is it important? Nope...not now. The wash sale rules have become moot. Simply report your purchases and sales as you normally would. Your ultimate loss would be the same computing the buys and sells the normal way and making the basis adjustments as the wash sale rules requires.

So the key is to not let any wash sales bridge two tax years. If you can avoid that, the wash sale rules actually become moot.

TMF Taxes

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