How do you avoid a wash sale? Well, first of all, why would you want to sell an investment for a loss? This is a big topic this year because the stock market has not been great for a lot of people's investments. And one of the major reasons that people sell investments for a loss is because they want to take advantage of the tax deduction. The way our tax system works is that if you have an investment and have a gain in it, when you sell that investment, you owe taxes on that gain.

But it works the opposite way when you have a loss and you get a deduction because you lost money on an investment. However, there is a catch. The IRS defines a wash sale as when you sell an investment and buy it back within 30 days. In that case, the IRS does not let you take the tax deduction. But here's a tip for you if you want to avoid that problem.

If you own index funds, it's okay to sell one of those index funds and then buy a different one that's exposed to the exact same index. So for example, if it's a year like this year, where your Vanguard S&P 500 fund might be down 20%, you can sell your Vanguard S&P 500 fund, take that loss and buy back the Charles Schwab S&P 500 fund and maintain your portfolio's correct exposure without triggering the wash sale rule.