The IRS has specific tax rules for wash sales. Investors who wish to engage in this investment practice should be aware of these regulations before filling out their federal income tax returns.

Gains - No special tax rules apply if an investor realizes a gain on a wash sale of stock or other securities; rather, the sale will be taxed under the rule’s peculiar to both the type of disposition and to the particular stock or securities sold.

Losses - On the other hand, to the extent that shares of stock or securities sold are replaced in a wash sale, any loss realized on the stock or securities sold may not be recognized for income tax purposes. (IRC Sec. 1091(b); Reg. Sec 1.1091-1(c))