If you have sold your shares of a particular stock and decide you want to still be invested in the company, you can buy the shares again. How quickly you can re-buy the shares depends on the stock brokerage rules and your reason for selling the shares. Selling a stock triggers a tax-reportable event.
Reason for Selling And Buying Back
The first consideration is why you sold the stock you now want to buy back. A major reason to sell a stock that is considered to be a long-term holding is to take a loss for income tax purposes. If the sale was for a tax loss, the wash sale rules apply. If the stock was sold for a gain, that gain is taxable. It does not matter how sooner or later you repurchase the stock.
Stock Trade Settlement
When you sell the stock in your brokerage account, the trade is not official until the settlement date, three business days after the trade was executed. Selling stock you have bought within the three days is called free-riding and is prohibited. Buying stock with unsettled funds is less of an issue, but waiting the three days before buying back your stock will avoid any warning that your are in possible violation of the Federal Reserve Regulation T rules
Wash Sale Rule
If you sold the stock to take a tax loss and buy the stock back within 60 days, the Internal Revenue Service will call the transaction a "wash sale" and disallow the loss for income tax purposes. Capital losses incurred from the sale of stock can be used to offset other capital gains and even ordinary income. The wash sale rule prevents investors from selling stock and quickly buying it back just to write off the loss. If you sold your stock to use the loss as a tax deduction, wait at least 60 days after the sale before re-buying the stock.
Trying to Avoid Wash Sale Rule
The IRS will disallow a tax loss if you try to find other ways around the wash sale rule. Some tactics that trigger a wash sale include having another family member buy the stock or buying call option contracts on the stock. If your stock is about to be purchased by another company and you buy shares of the buying company, the IRS will rule the purchase is a wash sale.
- Fairmark: Wash Sales 101
- SEC: Freeriding
- Internal Revenue Service. "Publication 550: Investment Income and Expenses (Including Capital Gains and Losses)." Accessed April 29, 2020.
- Internal Revenue Service. "Rev. Rul. 2008-5," Pages 1-4. Accessed April 29, 2020.
- Internal Revenue Service. "What if I withdraw money from my IRA?" Accessed April 29, 2020.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.