The U.S. wash-sale rule disallows a current loss on stock or securities when substantially identical property is acquired within the prescribed period.
The wash-sale rule is a U.S. federal tax rule that disallows a current loss deduction when a taxpayer sells stock or securities at a loss and acquires substantially identical stock or securities within 30 days before or after the sale. In a standard taxable-account case, the disallowed loss is added to the replacement property’s basis and its holding period is adjusted, postponing rather than immediately deducting the loss.
The rule is not a ban on repurchasing an investment. It changes the timing and reporting of the loss. The result can be more severe when the replacement purchase occurs in an IRA or Roth IRA because the ordinary replacement-basis adjustment does not apply.
| Test | Question | Why it matters |
|---|---|---|
| Loss disposition | Was stock or a security sold or traded at a recognized loss? | The ordinary wash-sale rule does not disallow a gain |
| Replacement timing | Was replacement property acquired within 30 days before or after the sale? | Purchases on either side of the sale date count |
| Substantial identity | Is the replacement stock or security substantially identical? | Similar exposure alone is not a complete legal test |
| Taxpayer connection | Was the acquisition made by the taxpayer or another covered person or account? | A different account may not prevent application |
All four require evidence. A brokerage label is useful, but it does not replace analysis of the complete transaction history.
The statutory period begins 30 days before the loss sale and ends 30 days after it. The sale date sits in the middle.
| Relative date | Position in the test |
|---|---|
| Day -30 through day -1 | Pre-sale acquisitions can trigger a wash sale |
| Day 0 | Loss-sale date |
| Day +1 through day +30 | Post-sale acquisitions can trigger a wash sale |
| Before day -30 or after day +30 | Outside the ordinary timing window, although other rules can still apply |
Calling this only a “30-day waiting rule” is incomplete. An investor who bought replacement shares 10 days before selling the older lot at a loss does not avoid the rule by making no purchase afterward.
Calendar days, not trading days, are used. Transaction-specific rules can affect when a sale, short sale, option, or acquisition is treated as complete, so trade confirmations and contract terms matter.
flowchart TD
A["Sale, trade, or other disposition"] --> B{"Recognized loss on stock or securities?"}
B -->|"No"| C["Ordinary wash-sale rule does not disallow this result"]
B -->|"Yes"| D["Review acquisitions from 30 days before through 30 days after"]
D --> E{"Substantially identical property, contract, or option acquired?"}
E -->|"No"| F["No wash sale under the ordinary test"]
E -->|"Yes"| G["Match replacement units to loss units"]
G --> H{"Replacement acquired in IRA or Roth IRA?"}
H -->|"No"| I["Disallow matched loss currently; adjust taxable replacement basis and holding period"]
H -->|"Yes"| J["Disallow matched loss without ordinary replacement-basis adjustment"]
I --> K["Report and reconcile later disposition"]
J --> K
This workflow addresses section 1091 wash sales. Straddle, related-party, constructive-sale, short-sale, and other loss-deferral rules can apply separately or coordinate with it.
In a typical taxable-account wash sale, the current deduction is disallowed for the matched shares. The disallowed amount is generally added to the cost of the replacement stock or securities:
1Adjusted basis of replacement property
2= purchase cost of replacement property
3+ disallowed wash-sale loss
The holding period of the replacement property generally includes the holding period of the disposed property. These adjustments preserve the deferred loss for a later taxable disposition, subject to any new wash sale or other rule.
The loss has not reduced current taxable income merely because it appears in a broker’s realized-gain report. It becomes a basis adjustment linked to a replacement lot.
Assume an investor:
$10,000;$8,000, producing a $2,000 loss; and$7,800.The replacement purchase is inside the window and is substantially identical. Assuming the rule applies to the entire transaction, the $2,000 loss is not currently deductible.
| Replacement-lot basis calculation | Amount |
|---|---|
| Replacement purchase cost | $7,800 |
| Disallowed wash-sale loss | $2,000 |
| Adjusted basis of replacement lot | $9,800 |
If the investor later sells the replacement shares for $10,500 in a transaction that is not another wash sale, the simplified gain is $700, not $2,700:
1$10,500 proceeds - $9,800 adjusted basis = $700 gain
The basis adjustment postpones recognition of the original loss. It does not guarantee that the replacement shares will be sold at a gain or that the tax benefit will occur in a particular year.
Assume an investor sells 100 shares with a basis of $30 per share for $20 per share. The total loss is $1,000. Within the window, the investor buys 40 substantially identical shares for $19 per share.
Only 40 of the 100 loss shares are matched to replacement shares:
| Result | Calculation | Amount |
|---|---|---|
| Loss per share | $30 - $20 | $10 |
| Disallowed loss | 40 x $10 | $400 |
| Remaining recognized loss | 60 x $10 | $600 |
| Replacement purchase cost | 40 x $19 | $760 |
| Adjusted basis of replacement shares | $760 + $400 | $1,160 |
The adjusted basis is $29 per replacement share. The $600 recognized loss still enters the taxpayer’s capital-gain and capital-loss netting process; it is not automatically a dollar-for-dollar deduction against other income.
When multiple blocks are purchased, IRS guidance generally matches replacement shares in acquisition order, beginning with the first shares bought. Accurate lot-level records are therefore necessary.
Assume an individual sells 100 shares in a taxable account for $8,000 with a $10,000 adjusted basis. Ten days later, the individual causes a traditional IRA to buy 100 shares of the same stock.
The $2,000 taxable-account loss is disallowed under current IRS guidance. Unlike the standard taxable replacement-lot example, the IRA’s basis is not increased by the disallowed loss. The expected loss deduction can therefore be eliminated rather than merely deferred through taxable replacement basis.
The same concern applies to a Roth IRA. Other retirement plans and account arrangements require their own analysis; do not assume every account follows the taxable-account basis mechanism.
The Internal Revenue Code does not provide a simple percentage-overlap test. IRS Publication 550 directs taxpayers to consider all facts and circumstances.
Clearer cases include:
Less certain comparisons can involve:
Stock of one corporation is ordinarily not substantially identical to stock of another corporation. However, replacing one ticker with another does not create a universal safe harbor, especially in reorganizations or tightly linked instruments.
For funds and ETFs, “similar” and “substantially identical” are not interchangeable portfolio labels. Index methodology, holdings, weights, issuer, legal rights, and trading behavior may be relevant, but no general statement can resolve every pair.
Pre-sale purchases are frequently missed. Suppose an investor owns 200 shares, buys another 100 shares, and ten days later sells 100 older shares at a loss. The new 100-share purchase can be matched to the loss sale even though the investor made no acquisition after selling.
This issue often appears with:
Pausing only post-sale purchases is therefore not enough to test the complete window.
IRS Publication 550 states that a wash sale can occur when substantially identical stock is purchased by the taxpayer’s spouse or by a corporation the taxpayer controls. It also expressly addresses acquisitions for the taxpayer’s IRA or Roth IRA.
Operationally, review:
Ownership, control, and attribution can be fact-specific. Merely placing the replacement order at a different broker does not establish that the loss is allowed.
Current IRS guidance generally requires a broker’s Form 1099-B to show a wash-sale adjustment for covered securities when the replacement purchase has the same CUSIP and occurs in the same account. That reporting scope is narrower than the taxpayer’s substantive obligation.
A broker may not identify:
The absence of a wash-sale amount in box 1g does not prove that the loss is deductible. Conversely, transferred-basis data or broker matching can require reconciliation when records are incomplete or lots were moved between institutions.
IRS Publication 550 and the Form 8949 instructions generally direct taxpayers to report the transaction in the appropriate short-term or long-term part of Form 8949, enter code W, and report the disallowed amount as a positive adjustment. The adjusted totals then flow through Schedule D.
The replacement lot’s basis and holding period must also be preserved for future reporting. Useful evidence includes:
| Record | Purpose |
|---|---|
| Trade confirmations | Establish sale and acquisition dates, quantities, and prices |
| Lot-level basis history | Links the disallowed loss to replacement shares |
| Forms 1099-B | Shows broker-reported proceeds, basis, and some wash-sale adjustments |
| Cross-account transaction export | Identifies acquisitions one broker may not see |
| IRA and spouse account records | Supports taxpayer-level review outside one taxable account |
| Options and employee-plan statements | Identifies contracts or automatic acquisitions |
Return-year forms and line numbers can change. Use current instructions rather than copying a prior-year adjustment mechanically.
The rule is not limited to buying common shares after selling common shares. Section 1091 and IRS guidance extend the analysis to contracts and options to acquire or sell stock or securities. Warrants, convertible instruments, securities futures contracts, and short sales can require additional matching and completion-date rules.
Commodity futures contracts and foreign currencies generally are not covered by the ordinary wash-sale rule described in Publication 550, but straddle and other loss-deferral provisions can apply. A position should not be treated as unrestricted merely because section 1091 is inapplicable.
Section 1091’s statutory text applies to stock or securities. Whether a particular digital asset falls within that scope depends on its legal classification and the law applicable to the transaction. Other loss-deferral or anti-abuse rules may also matter, so avoid a blanket statement that every digital-asset loss is either covered or exempt.
A wash-sale adjustment and a Capital Loss Carryover operate at different stages.
| Item | Wash-sale loss | Capital loss carryover |
|---|---|---|
| Initial issue | Replacement acquisition disallows a current stock or securities loss | Recognized net capital loss remains after annual netting and deduction limits |
| Where amount goes | Usually replacement-lot basis in a taxable-account case | Later year’s short-term or long-term Schedule D category |
| Character | Holding-period and replacement-property rules affect later result | Individual carryover retains short-term or long-term character |
| Main evidence | Matched sale and acquisition lots | Prior Schedule D and carryover worksheet |
A disallowed wash-sale loss can eventually contribute to a later recognized capital loss. Only after annual netting and limits would an unused amount become a capital loss carryover.
Tax-Loss Harvesting attempts to use genuine investment losses while maintaining an appropriate portfolio. The wash-sale rule constrains how substantially identical exposure can be reacquired.
A replacement that is clearly different for tax purposes can also be meaningfully different for investment purposes. It may introduce tracking error, sector drift, liquidity differences, higher fees, wider spreads, credit risk, or unintended factor exposure. Remaining in cash to avoid a wash sale can create market-timing risk.
The objective is not simply to preserve a deduction. It is to compare the expected tax-timing benefit with transaction costs, portfolio risk, and the possibility that the deferred loss will have limited value.
The following sources describe U.S. federal rules. Other jurisdictions can use materially different superficial-loss or anti-avoidance provisions.
This article provides general financial and U.S. tax education. It is not individualized tax, legal, accounting, retirement, filing, or investment advice and does not establish a filing position. Current law, jurisdiction, taxpayer relationships, account ownership, security terms, basis, holding period, and transaction facts control the result.