(b) Short-term gains and holding periods If gain or loss from a short sale is considered as gain or loss from the sale or exchange of a capital asset under subsection (a) and if on the date of such short sale substantially identical property has been held by the taxpayer for not more than 1 year (determined without regard to the effect, under paragraph (2) of this subsection, of such short A short sale against the box of a stock is where the seller actually owns the stock, but does not want to close out the position.. SEC and the Financial Industry Regulatory Authority (FINRA) rules place restrictions on when you can sell short. You can read about these restrictions in our Fast Answers databank on "Short Sale Restrictions." What is the Wash Sale Rule? The IRS created the Wash Sale Rule to prevent investors from taking advantage of capital losses. The wash rule prevents an investor from selling an investment at a loss today, deducting that loss, and reinvesting in the same, or a substantially similar, investment tomorrow (or within a certain time frame).