What is it called when a security is sold at a loss, then repurchased within 30 days?

When a security is sold at a loss and then repurchased within 30 days, the transaction is referred to as a wash sale. This term originates from tax regulations and aims to prevent taxpayers from claiming a tax deduction for a loss on the sale of a security if they haven't genuinely divested from that investment. The IRS has established specific rules surrounding wash sales to discourage individuals from trying to create artificial tax benefits.

In essence, the primary stipulation is that if an investor sells a security at a loss and buys it back (or buys a substantially identical security) within 30 days, the loss is disallowed for tax purposes. Instead, the disallowed loss is added to the cost basis of the repurchased security, which may influence future capital gains calculations when that security is eventually sold. This mechanism allows the investor to retain their position in the security but does not permit them to realize a current loss for tax benefit.