Wash Sale Rules
The plain answer
Section titled “The plain answer”A wash sale can occur when you sell an investment at a loss and buy a substantially identical security during the period the wash-sale rule uses. That period covers thirty days before or after the sale.
When the rule applies, you generally cannot deduct the loss at that time. The loss is usually added to the cost basis of the replacement shares, which postpones the tax benefit until those shares are sold. Special consequences can apply when the replacement is bought in a retirement account.
How it actually works
Section titled “How it actually works”The rule looks for both a loss sale and a purchase of a substantially identical security within the restricted period. Purchases before the sale count, so waiting after the sale does not fix a replacement purchase that already occurred.
The rule can apply to only part of a sale. If you sell one hundred shares at a loss and replace twenty of them within the restricted period, the loss associated with those twenty shares may be disallowed while the loss on the other shares remains available.
The phrase substantially identical does not have one universal checklist. Selling shares and buying the same shares is the clearest case. Different companies are generally not substantially identical. Funds that track the same index deserve extra care, while funds following meaningfully different indexes may be easier to distinguish.
Brokerage reporting may not identify every wash sale. A broker might flag matching activity in one account, but purchases in another account, a spouse’s account, or a retirement account can still matter.
What this means for you
Section titled “What this means for you”Before selling at a loss, review recent purchases and scheduled purchases across relevant accounts. Turn off automatic dividend reinvestment when it could buy replacement shares during the restricted period.
If you want to remain invested, consider a replacement that provides suitable exposure without being substantially identical. Another option is to hold cash or wait until the restricted period has passed, but either choice can change your market exposure.
Keep trade confirmations and basis records. If a wash sale occurs in a taxable account, accurate basis tracking helps preserve the deferred loss. If retirement accounts or a spouse’s transactions are involved, consider working with a qualified tax professional.
Common mistakes
Section titled “Common mistakes”- Counting only purchases made after the loss sale
- Rebuying through automatic dividend reinvestment
- Assuming separate brokerage accounts are evaluated separately
- Ignoring purchases made by a spouse
- Treating any two funds as different without examining what they track
- Assuming a disallowed loss always disappears rather than usually being deferred
Related pages
Section titled “Related pages”Educational content, not personalized financial, tax, or legal advice. No affiliate relationships. Figures are for tax year 2026 and change annually.Read the full disclaimer.