Now, loophole here is in quotes, as generally tax loopholes are for the rich to avoid taxable income. This particular “loophole” is for the poor, and doesn’t actually reduce your taxable income or deduct it, it changes the timing of it in a way that’s potentially beneficial.
The thresholds for this vary depending on filing status, the filing year, and possibly other factors, you need to do research to figure out the exact numbers for your situation.
So, what is the loophole?
The wash sale rule prevents people from selling and rebuying a security to harvest a tax loss. However, if you have a GAIN on a security and perform a wash sale, that gain becomes taxable immediately and your cost basis and holding period resets to whatever you re-bought the security at. In most cases this is a bad thing and you want to avoid doing this. However, if you’re poor enough, a certain amount of long-term capital gains is taxed at 0%, and if you have almost no income at all (earn less than the standard deduction), then even some short term capital gains would be fully deducted (up to the standard deduction less your income). So theoretically you could do a wash sale, reset your cost basis to a higher amount. You have to pay capital gains tax now, but if that rate is 0, you effectively saved some tax $$ in the future when you’re hopefully carrying bags of cash w/ a $ sign on em.
There is nothing illegal or wrong about realizing a gain earlier than you have to, you’re just timing that gain to coincide with a time when you’re in a lower tax bracket (which in same cases might be zero).
Now, obviously, this is not tax/legal/financial advice, you should verify all of this information yourself or with your accountant, etc before acting on it.