What are wash sales? How does Frec handle them?

A wash sale occurs when you buy the same security or a "substantially identical" security within 30 days before or after the date you sold an investment at a loss. When a wash sale occurs, the loss on the sale cannot be used to offset gains or reduce taxable income and is added back to your cost basis.

For example, if you buy 10 shares of ABC stock for $100 per share ($1,000 of stock). One year later, the stock price drops and you sell your 10 shares for $8 per share for a $200 loss. Within 30 days, you purchase ABC 10 shares at $6 for $600. This triggers a wash sale and the $200 loss is added back to the cost basis of your ABC shares, increasing it from $600 to $800.

Our direct indexing algorithm automatically works to prevent wash sales within your direct indexing portfolio. It even tracks trades you make in your self-managed Frec account to help avoid conflicts.

Our system cannot account for trades made:

• In accounts you hold outside of Frec
• In your spouse’s accounts (whether at Frec or elsewhere)

These external trades may trigger wash sales that affect your direct indexing portfolio.

Note: We cannot prevent wash sales if you manually execute trades in your self-managed account that conflict with your direct indexing positions. 

Frec does not provide tax advice and you should consult your own tax advisor for your specific situation. This material was prepared for informational purposes.