It's been a decent market this year. It'll likely continue into next year. Nevertheless the market has had its weak spots. If you're like most good investors, you're doing the end of year juggling act. You're working on rebalancing your portfolio; positioning yourself ahead of the trends for the new year; staying on top of gains and losses; and watching the tax consequences of everything you do.

It's not easy. Further complicating the matter is the Wash Sale Rule. The Wash Sale Rule was put into place to prevent investors from gaining a tax benefit by marking stocks to market.

Say you own 100 shares of XYZ and you're in the red on the investment. If you sell your XYZ you can deduct the loss. The trouble you have, though, is you still want to own your XYZ because you believe it will recover. The Wash Sale Rule says that if you do sell your XYZ you must wait 30 days to buy it back or you cannot deduct your loss.

A wash sale happens when you sell any security at a loss and acquire control of that same security within 30 days of the sale. Acquiring control includes buying, trading for or even taking an options position.

And the Wash Sale Rule applies not only to the security you happen to sell and may want to buy back, it applies also to any substantially identical security.

That substantially identical thing is something to watch out for. It means you can't sell your Real Estate Index Equity mutual fund and use the proceeds to purchase a Real Estate ETF within 30 days if you want to deduct any losses you may have on the mutual fund.

So what do you do if the IRS disallows your loss is disallowed because of the Wash Sale Rule?

That's simple. You just increase your basis in your replacement securities by the amount of the disallowed loss. You don't get to take your deduction, but you do get to incorporate the loss into the new investment. You also get to incorporate the old securities' holding period, a strange and unexpected and yet wonderful little quirk in the Wash Sale Rule.