What is the purpose of the wash sale rule?
In a comment on this answer you asked  It's not clear to me why the ability to defer the gains would matter (since you never materially benefit until you actually sell) but the estate step up in basis is a great point! Could you describe a hypothetical exploitive scenario (utilizing a wash sale) in a little more detail?  This sounds like you still have the same question as originally, so I'll take a stab at answering with an example.   I sell some security for a $10,000 profit.  I then sell another security at a $10,000 loss and immediately rebuy.  So pay no taxes (without the rule).  Assuming a 15% rate, that's $1500 in savings which I realize immediately.  Next year, I sell that same security for a $20,000 profit over the $10,000 loss basis (so a $10,000 profit over my original purchase).  I sell and buy another security to pay no taxes.  In fact, I pay no taxes like this for fifty years as I live off my investments (and a pension or social security that uses up my tax deductions).  Then I die.  All my securities step up in basis to their current market value.  So I completely evade taxes on $500,000 in profits.  That's $75,000 in tax savings to make my heirs richer.  And they're already getting at least $500,000 worth of securities.   Especially consider the case where I sell a privately held security to a private buyer who then sells me back the same shares at the same price.   Don't think that $10,000 is enough?  Remember that you also get the original value.  But this also scales.  It could be $100,000 in gains as well, for $750,000 in tax savings over the fifty years.  That's at least $5 million of securities.   The effective result of this would be to make a 0% tax on capital gains for many rich people.   Worse, a poorer person can't do the same thing.  You need to have many investments to take advantage of this.  If a relatively poor person with two $500 investments tried this, that person would lose all the benefit in trading fees.  And of course such a person would run out of investments quickly.   Really poor people have $0 in investments, so this is totally impractical. "'Note that ""to keep an investor from lowering their tax bill"" is not an explanation'. Well, yes it is. In fact  it is the only explanation. The rule plainly exists to prevent someone from realizing a loss when their economic situation remains unchanged before/after a sale. Now, you might say 'but I have suffered a loss, even if it is unrealized!' But, would you want to pay tax on unrealized gains? The tax system still caters to reducing the tax impact of investments, particularly capital investments. Part and parcel with the system of taxing gains only when realized, is that you can recognize losses only when realized. Are there other ways to 'artificially' reduce taxable income? Yes. But the goal of a good tax system should be to reduce those opportunities. Whether you agree that it is fair for the government to prevent this tax-saving opportunity, when others exist, is another question. But that is why the rule exists." "Overall the question is one of a political nature.   However, this component can have objective answers: ""What behavior is trying to be prevented?"" There are mechanisms by which capital gains can be deferred (1031 like-kind exchange, or simply holding a long position for years) or eliminated by the estate step up in basis.  With these available, mechanisms that enable basis-reduction are ripe for abuse.   On the other hand, if this truly bothers you then if you meet the IRS qualifications of a day trader, you may elect to use ""mark to market"" accounting, eliminating this entirely as a concern. Special rules for traders of securities" Equal sized gains and losses in alternating years would lead to an   unjust positive tax. On the contrary. If I can take my gains at the long term rate (15%) in even years, but take losses in odd years, up to $3000, or let them offset short term gains at ordinary rate, I've just gamed the system.  What is the purpose of the wash sale rule? Respectfully, we here can do a fine job of explaining how a bit of tax code works. And we can suggest the implication of those code bits. But, I suspect that it's not easy to explain the history of particular rules. For wash sale, the simple intent is to not let someone take a loss without actually selling the stock for a time. You'd be right to say the +/- 30 days is arbitrary.  I'd ask you to keep 2 things in mind if you continue to frequent this board -
"TL;DR - my understanding of the rules is that if you are required to register for GST (earning more than $75k per annum), you would be required to pay GST on these items. To clarify firstly: taxable income, and goods and services tax, are two different things. Any income you receive needs to be considered for income tax purposes - whether or not it ends up being taxable income would be too much to go into here, but generally you would take your expenses, and any deductions, away from your income to arrive at what would generally be the taxable amount. An accountant will help you do this. Income tax is paid by anyone who earns income over the tax free threshold. By contrast, goods and services tax is a tax paid by business (of which you are running one). Of course, this is passed on to the consumer, but it's the business that remits the payment to the tax office. However, GST isn't required to be charged and paid in all cases: The key in your situation is first determining whether you need to register for GST (or whether indeed you already have). If you earn less than $75,000 per year - no need to register. If you do earn more than that through your business, or you have registered anyway, then the next question is whether your items are GST-free. The ATO says that ""some education courses [and] course materials"" are GST-free. Whether this applies to you or not I'm obviously not going to be able to comment on, so I would advise getting an accountant's advice on this (or at the very least, call the ATO or browse their legal database). Thirdly, are your sales connected with Australia? The ATO says that ""A sale of something other than goods or property is connected with Australia if ... the thing is done in Australia [or] the seller makes the sale through a business they carry on in Australia"". Both of these appear to be true in your case. So in summary: if you are required to register for GST, you would be required to pay GST on these items. I am not a financial advisor or a tax accountant and this is not financial advice." All rules have unintended consequences.  The more complex the ruleset, the more difficult it is to predict the outcome.  The choice is fundamentally to constantly change the rules, and pile rules on top of rules, or simplify the rules and make them more permanent.   If what the MP was suggesting was tax-code simplification in order to reduce the unintended side-effects then I would call this smart.  However adding extra rules and making the tax-code denser and more difficult to follow I believe makes the 'intent' of the law _harder_ to follow, undermining the purpose of creating the new rules. "According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is ""substantially identical"". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical." You add the wash sale loss to your cost basis for the other transaction so you would have two entries in your schedule d reporting 1.) Listing the $2000 loss as a wash 2.) The cost basis for your second transaction is thus $1000+$2000 = $3000 so when it was sold for $2000 you now have a reportable loss of $1000. For more information see here.... http://www.ehow.com/how_5313540_calculate-wash-sale.html From the IRS Section 1091. Loss from Wash Sales of Stock or Securities  Section 1091(a) provides that in the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law),or has entered into a contract or option so to acquire, substantially identical stock or 3 securities, then no deduction shall be allowed under § 165 The document is not long, 4 pages, and should be read to see the intent. It's tough to choose the one snippet, but the conclusion is this is the definitive response to that question.  A purchase within an IRA or other retirement account can create a wash sale if such a purchase would be a wash sale otherwise, i.e. the fact that it's a retirement account doesn't avoid wash rules. "Mathematically it's arbitrary - you could just as easily use the bid or the midpoint as the denominator, so long as you're consistent when comparing securities.  So there's not a fundamental reason to use the ask.  The best argument I can come up with is that most analysis is done from the buy side, so looking at liquidity costs (meaning how much does the value drop instantaneously purely because of the bid-ask spread) when you buy a security would be more relevant by using the ask (purchase price) as the basis. Meaning, if a stock has a bid-ask range of $95-$100, if you buy the stock at $100 (the ask), you immediately ""lose"" 5% (5/100) of its value since you can only sell it for $95." "Edited: Pub 550 says 30 days before or after so the example is ok - but still a gain by average share basis.  On sale your basis is likely defaulted to ""average price"" (in the example 9.67 so there was a gain selling at 10), but can be named shares at your election to your brokerage,  and supported by record keeping. A Pub 550 wash might be buy 2000 @ 10 with basis 20000, sell 1000 @9 (nominally a loss of 1000 for now and remaining basis 10000), buy 1000 @ 8 within 30 days.   Because of the wash sale rule the basis is 10000+8000 paid + 1000 disallowed loss from wash sale with a final position of 2000 shares at 19000 basis.  I think I have the link at the example:  http://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010601" Perhaps it was to close a short position.  Suppose the seller had written the calls at some time in the past and maybe made a buck or two off of them.  By buying the calls now they can close out the position and go away on vacation, or at least have one less thing they have to pay attention to.  If they were covered calls, perhaps the buyer wants to sell the underlying and in order to do so has to get out of the calls.