What is the 30-day wash sale rule?

The 30-day wash sale rule states that if you sell a security at a loss and repurchase a "substantially identical" security within 30 days before or 30 days after the sale date, the IRS will disallow the tax deduction for that loss. This means the total window is 61 days, including the sale date itself.

Does the wash sale rule apply to mutual funds and ETFs?

Yes, the wash sale rule applies to mutual funds and ETFs. If you sell a fund at a loss and buy a "substantially identical" fund within the 61-day window, it's a wash sale. Funds tracking the exact same index are often considered substantially identical, while funds tracking different indexes or with different investment objectives generally are not.

How do I avoid a wash sale?

The simplest way to avoid a wash sale is to wait at least 31 days after selling a security at a loss before repurchasing the same or a substantially identical security. Alternatively, you can immediately buy a different, non-substantially identical security to maintain market exposure.

Does the wash sale rule apply to IRAs or 401(k)s?

Yes, the wash sale rule applies across all your accounts, including IRAs and 401(k)s. If you sell a security at a loss in a taxable account and repurchase a substantially identical security in an IRA or 401(k) within the 61-day window, the loss is disallowed and cannot be added to the basis of the shares in the retirement account, effectively making the loss permanently lost for tax purposes.

What happens if I trigger a wash sale?

If you trigger a wash sale, the disallowed loss is added to the cost basis of the newly acquired, substantially identical security. This defers the recognition of the loss until the new security is sold in a non-wash sale transaction. If the repurchase is in a retirement account, the loss is permanently disallowed.

How do I report a wash sale on my taxes?

Your brokerage firm will typically report wash sales that occur within the same account on Form 1099-B. You must then report the adjustment on Form 8949 and Schedule D. For wash sales across different accounts or brokerages, you are responsible for tracking and manually making the necessary adjustments to your cost basis and reporting them to the IRS.

Is it a wash sale if my spouse buys the same stock?

Yes, the wash sale rule applies to you and your spouse. If you sell a security at a loss and your spouse repurchases a substantially identical security within the 61-day window, it is considered a wash sale. The disallowed loss would be added to the cost basis of the shares in your spouse's account.

Wash Sale Rule: Complete Tax Guide for Investors | One…