Wash Sales Under NIRC Section 38: Why a Stock Loss Is Disallowed If You Rebuy Within 30 Days

A wash sale is a sale of shares or securities at a loss followed or preceded by a purchase of substantially identical securities within 30 days, and NIRC Section 38 disallows the loss deduction. The window runs 30 days before the sale to 30 days after it, so it covers 61 days in total. Only a dealer in stock or securities, acting in the ordinary course of its business, is exempt from the disallowance.

What does NIRC Section 38 provide? #

NIRC Section 38(A) prevents a taxpayer from realizing a tax loss on securities while effectively keeping the same position. The statute reads:

“(A) 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 thirty (30) days before the date of such sale or disposition and ending thirty (30) days after such date, the taxpayer has acquired (by purchase or by exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contact or option so to acquire, substantially identical stock or securities, then no deduction for the loss shall be allowed under Section 34 unless the claim is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer.”

— Section 38(A), National Internal Revenue Code (Republic Act No. 8424), as posted by LawPhil. The spelling “contact” appears as in the posted text.

How long is the wash-sale window? #

The window starts 30 days before the date of the sale and ends 30 days after it. Counting the sale date itself, that is a 61-day period. A repurchase, a contract, or an option to buy substantially identical securities anywhere inside that period triggers the rule. Buying on day 31 after the sale falls outside the window.

What if I rebuy only part of the shares? #

Section 38(B) addresses a partial repurchase: when fewer shares are acquired than were sold, the particular shares whose loss is not deductible “shall be determined under rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.” The Code itself does not give a formula, so keep trade-date records that show lot-by-lot matching.

Worked example: two sales of the same shares #

Rico Dela Cruz, a corporate treasurer investing the company’s idle cash, sells 1,000 shares of an unlisted corporation that cost ₱100 each, at ₱60 each. The loss is ₱40,000 (₱100,000 cost less ₱60,000 proceeds). All figures are fictional.

Scenario B’s deduction still has to clear other limits. If the shares are capital assets, NIRC Section 39 caps the loss at capital gains. How a particular share sale is taxed in the first place is covered in BIR Form 1707 capital gains tax on unlisted shares and BIR Form 2552 stock transaction tax.

Who is exempt from the wash-sale rule? #

Only a dealer in stock or securities, and only for transactions made in the ordinary course of its business. A corporation or individual who holds shares as an investment is not a dealer, even if it trades often. Section 38 disallows the deduction “under Section 34,” so the question arises where a loss would otherwise be claimed as a deduction.

Summary #

NIRC Section 38 disallows a loss on shares or securities if the taxpayer buys, or contracts to buy, substantially identical securities from 30 days before to 30 days after the sale. Dealers acting in the ordinary course are exempt. Partial repurchases are matched under rules the Code leaves to regulations. The quoted text comes from RA 8424 as posted by LawPhil; verify against the current consolidated Code before applying it.

Frequently asked questions #

What is a wash sale under the Philippine tax code? #

A wash sale is a sale of shares or securities at a loss where the taxpayer acquires, or contracts or has an option to acquire, substantially identical securities within 30 days before or after the sale. NIRC Section 38(A) disallows the loss deduction.

How many days does the wash-sale rule cover? #

The window begins 30 days before the sale and ends 30 days after it, so it spans 61 days counting the sale date. A purchase made on day 31 after the sale falls outside the window.

Does the rule apply to dealers in securities? #

Not for transactions made in the ordinary course of a dealer’s business. NIRC Section 38(A) carves out claims made by a dealer in stock or securities for such transactions.

What happens if I rebuy fewer shares than I sold? #

Section 38(B) says the particular shares whose loss is not deductible are determined under rules prescribed by the Secretary of Finance upon recommendation of the Commissioner. Keep lot-level trade records so the matching can be shown.

If the wash-sale rule does not apply, is my stock loss automatically deductible? #

No. The loss must still satisfy other rules, such as the capital loss limit in NIRC Section 39, and it depends on how the particular share sale is taxed.