What Does Wash Retarded Mean?
Wash retarded is informal slang for a wash sale, a transaction where an investor sells a security at a loss and then buys a substantially identical security within 30 days before or after the sale. The Internal Revenue Service (IRS) disallows the loss deduction to prevent artificial tax losses.
How Wash Sale Rules Work
When a wash sale occurs, the disallowed loss is added to the cost basis of the replacement shares. This delays the tax benefit until the new position is sold without triggering another wash sale. The rule applies across traditional and individual retirement accounts.
Practical Impact for Investors
Wash retarded trades can reduce tax-loss harvesting benefits and increase the effective cost basis of a portfolio. Investors often track trade dates and holdings carefully to avoid accidental violations. For more details, see the official IRS guidance on wash sales at https://www.irs.gov/publications/p550.
