realoffs

A realoff is a term used in finance and accounting to describe a transaction where a security is sold and then repurchased by the same entity or a closely related entity. This is often done to realize a capital loss for tax purposes, even though the underlying economic position of the entity has not changed. The key feature of a realoff is that the seller effectively retains control or economic interest in the asset sold.

This practice is also known as a wash sale or simulated sale. While it allows for the booking of a loss, tax authorities often have specific rules and regulations to disallow losses from such transactions if the repurchase occurs within a short period of time. The intent behind these rules is to prevent taxpayers from artificially creating tax losses without a genuine change in ownership or economic exposure.

The specifics of what constitutes a disallowed realoff vary by jurisdiction. Generally, if an investor sells a security and buys a substantially identical security shortly before or after the sale, the loss realized on the sale may be disallowed for tax purposes. The investor might be able to claim the loss later, once they sell the repurchased security without engaging in a similar transaction. Understanding these tax implications is crucial for investors and financial professionals.