Learn when the wash-sale rule disallows an investment loss, how the 61-day window works, how replacement basis changes, and what brokers miss.
A wash sale generally occurs when you sell or trade stock or securities at a loss and acquire substantially identical stock or securities within 30 days before or after the sale. The rule prevents the current deduction when the taxpayer has not meaningfully ended the investment position.
The window covers 61 calendar days: the sale date, the 30 days before it, and the 30 days after it. Buying replacement shares before the loss sale can therefore trigger the rule just as buying afterward can.
The rule generally applies when, within the window, the taxpayer:
A spouse's acquisition and purchases by a controlled corporation can also matter. Automatic dividend reinvestment is a common accidental trigger.
The rule concerns losses. Selling at a gain and repurchasing does not convert the gain into a wash sale. The statutory rule applies to stock or securities, so cryptocurrency and other property require separate analysis under current law rather than an assumption that every asset follows the same rule.
Alex owns 100 shares with a $10,000 basis. Alex sells all 100 for $8,000, realizing a $2,000 loss. Twenty days later, Alex buys 100 substantially identical shares for $8,500.
The $2,000 loss is currently disallowed. It is generally added to the replacement shares' basis:
$8,500 purchase cost + $2,000 disallowed loss = $10,500 adjusted basis
The holding period of the old shares generally carries into the replacement shares. When the replacement shares are later disposed of in a non-wash transaction, the higher basis may reduce gain or increase loss.
If Alex replaces only 40 of the 100 shares, the rule generally applies proportionately to 40 shares. Accurate lot matching matters when quantities and purchase dates differ.
In an ordinary taxable-account replacement, the disallowed loss is generally preserved through the basis adjustment. It is postponed, not necessarily lost forever.
The result is harsher when the replacement acquisition occurs in the taxpayer's traditional or Roth IRA. IRS Revenue Ruling 2008-5 states that the taxable-account loss is disallowed and the IRA's basis is not increased. The tax benefit can therefore be permanently lost.
This is why wash-sale review must include taxable brokerage accounts, IRAs, Roth IRAs, a spouse's accounts, employee stock-plan activity, and automatic purchases — not only the account that reported the sale.
There is no universal percentage-overlap test that makes two investments safe or unsafe. Shares of the same company are ordinarily substantially identical. Different share classes, options, convertible securities, mutual funds, and exchange-traded funds require analysis of their rights, holdings, index, issuer, and facts.
Two funds with similar investment objectives are not automatically substantially identical, but merely changing ticker symbols does not guarantee a different investment. Tax advice should not substitute for an investment-risk review.
A broker may report a detected wash sale in Form 1099-B box 1g and adjust basis for covered securities within the account. Broker reporting can be incomplete for:
The taxpayer remains responsible for the full return. Consolidating transaction data and reviewing the 61-day window across year-end is essential because a January purchase can affect a December loss.
Form 8949 is generally used to report affected sales. An adjustment code and amount reconcile the reported proceeds and basis with the allowed gain or loss. Totals flow to Schedule D.
The loss should not simply be deleted from the records. The disallowed amount, replacement lot, revised basis, and carried holding period should be documented. If the replacement shares are later transferred between brokers, the receiving records may not capture every historical adjustment.
California generally follows the federal wash-sale framework for ordinary stock and securities transactions, and the federal amount may flow into California capital-gain reporting. California and federal results can still differ when the underlying asset basis differs or another conformity issue exists.
California provides no preferential rate for long-term capital gains. Maintain separate California basis records whenever prior depreciation, retirement-account basis, residency, or other adjustments differ from federal amounts.
Before harvesting a loss, inventory recurring investments, open orders, employee-plan purchases, and all household accounts. Record the trade date, quantity, old basis, replacement date, replacement quantity, disallowed loss, revised basis, and holding period.
Waiting more than 30 days is one way to avoid a same-security replacement, but market exposure and investment suitability are separate decisions. Coordinate tax and investment planning rather than allowing the tax rule alone to dictate the portfolio.
Heath Income Tax can reconcile multi-account trades, Form 1099-B adjustments, replacement basis, and California reporting before capital losses are claimed.
Is the window 30 or 61 days?
It covers 30 days before, the sale date, and 30 days after — 61 days in total.
Does a wash sale apply to gains?
No. It is a loss-disallowance rule.
Is the loss always gone forever?
Usually a taxable-account replacement postpones it through basis. An IRA replacement can make the loss permanently unavailable.
Can a January trade affect last year's return?
Yes. A purchase within 30 days after a December loss sale can trigger the rule.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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