A wash sale is a sale of a security (stock, bonds, options) at a loss and repurchasing the same or substantially identical stock soon afterward. The idea is to make an unrealized loss claimable as a tax deduction, by offsetting against other capital gains in the current or future tax years. The security is repurchased in the hope that it will recover its previous value.
In some tax codes, such as the US and the UK, tax rules have been introduced to disallow the practice, e.g., if the stock is repurchased within 30 days of its sale. The disallowed loss is added to the basis of the newly acquired security. Tax authorities may consider the practice illegal even in the absence of explicit regulations, on the grounds that the transaction is not genuine, but intended only to reduce tax liability (such as in Australia).
Source: Wash Sale at Wikipedia
