The wash-sale rule is a regulation imposed by tax authorities, such as the Internal Revenue Service (IRS) in the United States, that aims to prevent investors from claiming inappropriate tax deductions on investment losses. Under this rule, if an investor sells a security at a loss and repurchases the same or a substantially identical security within a specific time frame, typically within 30 days before or after the sale, the loss cannot be claimed for tax purposes.

The wash-sale rule is designed to prevent investors from selling a security at a loss to offset capital gains and then immediately repurchasing the same security to maintain their position in the market. By disallowing the tax deduction for such transactions, the rule ensures that investors cannot artificially create losses for tax advantages without genuinely altering their investment positions.

If a wash sale occurs, the disallowed loss is added to the cost basis of the repurchased security. This adjustment effectively defers the recognition of the loss until the subsequent sale of the repurchased security.

It is important for investors to be aware of the wash-sale rule and its implications to ensure compliance with tax regulations and avoid any unintended tax consequences. Consulting with a tax professional can provide further guidance on the application of the wash-sale rule and its impact on individual investment strategies.