Wash Sale Rule Basics

The US wash sale rule disallows claiming a loss on the sale of stock or securities when you buy substantially identical shares within 30 days before or after the sale. The disallowed loss is usually added to the basis of the replacement shares instead of vanishing forever.

Harvesting losses without understanding wash sales is a common year-end mistake.

The 61-day window

Picture selling at a loss on day 0. The window often includes:

• 30 days before the sale
• The sale day
• 30 days after the sale

Purchases of substantially identical stock in that window can trigger a wash sale on the loss sale.

What “substantially identical” means (roughly)

Same company common stock is clearly identical. SPY vs VOO both track the S&P 500 but are different funds, facts matter; do not assume swapping ETFs avoids all issues.

Preferred vs common of the same issuer can be problematic depending on circumstances. Bonds of the same issuer with different coupons are usually not identical to the stock.

Effect on basis

Disallowed loss increases cost basis of replacement shares. When you later sell those shares, the deferred loss may reduce gain or increase loss then.

Your broker may code wash adjustments on 1099-B, but all accounts you control (including IRA purchases in some cases) can create wash sales even if the broker does not link them.

Options connection

Buying calls or selling puts can create exposure similar to owning stock. IRS straddle and wash sale guidance for options is technical. Examples that prompt questions:

• Sell stock at loss, sell cash-secured put (obligation to buy stock)
• Sell stock at loss, buy deep ITM call
• Loss on stock, spouse buys same stock in another account you control

When harvesting with options, get advice if the trade is not a simple stock round trip.

IRA complication

Buying the same stock in an IRA within the wash window after selling at a loss in taxable may defer the loss with no easy use of the basis adjustment inside the IRA. This is a painful surprise for DIY harvesters.

Reporting

Wash sales may show on 1099-B with code W or adjustment amounts. Reconcile to your trade log. Tax software imports may need manual fixes.

Avoidance strategies (educational, not recommendations)

• Wait 31+ days before repurchasing the same ticker
• Use a non-identical substitute ETF for exposure during the wait
• Harvest in an account without conflicting purchases elsewhere

Each approach has market risk during the wait.

Relation to tax loss harvesting

Tax loss harvesting only saves tax when losses are allowed. Wash sales defer timing; they do not magically create free money.

Worked example: timeline

• Day −10: Buy 100 shares at $100.
• Day 0: Sell at $80 ( $2,000 loss ).
• Day +15: Buy 100 shares at $82.

The loss on day 0 may be washed. Basis on new shares may include the disallowed loss adjustment. When you later sell at $90, part of the economic story was deferred, not erased.

Worked example: spouse or IRA purchase

You sell stock at loss in taxable. Your spouse buys the same stock in a joint taxable account within 30 days. Wash sale rules can apply to your loss even though you did not rebuy personally.

IRA purchases after a taxable loss are a known trap. Plan harvests across the household.

Crypto and other assets

Wash sale rules historically focused on securities. Rules evolve. Ask a CPA if you trade crypto, options on broad baskets, or custom products.

Recordkeeping checklist

• Trade date and settlement date for each lot
• 1099-B wash adjustments
• Notes on substitute tickers used during 31-day windows

Form 8949 and adjustments

Wash sales flow to tax forms as adjustments to basis and loss disallowance lines. Even if your broker flags some washes, you remain responsible for completeness across accounts.

Options and substantially identical (caution)

Deep ITM calls can behave like stock for some tax questions. Straddles and mixed positions add rules beyond this intro. Escalate to a CPA when harvesting around active option books.

Related guides

• Tax loss harvesting basics
• Reporting options trades
• Options and stock taxes overview

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ThetaViz provides educational tools only. This guide is not investment, tax, or legal advice. Prices, margin requirements, and tax rules change. Confirm details with your broker and qualified professionals before trading.