when it s a wash two transactions cancel each other out effectively creating a break even position 
if a company spends 25 000 to produce merchandise and sells it for 25 000 the result is a wash if an investor loses 5 000 on the sale of an investment and gains 5 000 from the sale of another the transaction has been washed that s simple enough but the irs has complicated tax rules regarding wash sales by investors and they are related to the claiming of losses on investments specifically the rules prevent an investor from claiming a loss if they sell a security at a loss and then repurchase the same security or one that is substantially identical within 30 days 1for example say an investor buys 100 shares of anheuser busch bud stock for 10 000 just six weeks later the value of the 100 shares declines to 7 000 the investor sells all 100 shares hoping to deduct the capital loss of 3 000 at tax time but then a week later decides bud is a real bargain and buys 100 shares again the initial loss cannot be claimed for tax purposes since the same security was repurchased within the limited time interval an investor can t sell a stock at a loss buy the same stock again within 30 days and still claim the loss as a deduction however the loss realized from a wash is not completely wasted the loss can be applied to the cost basis of the second purchase of bud that increases the cost basis of the purchased securities and therefore will reduce the size of any future taxable gains when the stock is sold the benefit of the wash has been delayed but it hasn t disappeared in addition the holding period of the wash securities is added to the holding period of the replacement securities in this example the investor has added six weeks to the holding period of that stock making it that much easier to qualify for the most favorable tax rate on long term capital gains stock must be held for one year to qualify for that lower tax rate 