The Wash-Sale Rule for Stocks

Key Takeaways

The wash-sale rule is one of the most frequently misunderstood provisions in individual tax law — not because the core idea is hard, but because the edges are much wider than most traders realize. The 61-day window, the cross-account tracking gap, and the IRA carve-out all create situations where you think you've locked in a deduction and actually haven't. This guide is built around closing those gaps.

Direct answer: IRC §1091 disallows a capital loss on a stock or securities sale if you buy or otherwise acquire substantially identical stock or securities within 30 days before or after that sale — a 61-day total window. The disallowed loss is added to the cost basis of your replacement shares (deferring, not permanently eliminating, the deduction), with one critical exception: wash sales that move into an IRA or Roth IRA permanently destroy the loss because there is no mechanism to recover it through a basis adjustment in a tax-advantaged account. Cryptocurrency is not currently subject to the rule, but active legislative proposals exist as of mid-2026.

• The wash-sale window is 61 days total: 30 days before the sale date through 30 days after (including the sale date itself).
• "Substantially identical" clearly covers the same stock ticker; it extends to options on the same stock, and may include convertible preferred stock or bonds — but not an ETF tracking the same index or a different company in the same sector.
• The disallowed loss is added to the cost basis of replacement shares and deferred, not erased — except for IRA wash sales, where it is permanently lost.
• Brokers report within-account wash sales on Form 1099-B Box 1g, but are not required to track cross-account wash sales — that burden falls entirely on the taxpayer.
• Selling at a loss in late December and repurchasing in January still triggers the rule; the window does not reset at the calendar year boundary.
• Crypto is currently exempt (property, not a security), but several 2025–2026 bills would change that — the loophole should not be assumed permanent.

The 61-Day Window: How the Rule Actually Works

IRC §1091 is titled "Loss from wash sales of stock or securities." Its core rule is straightforward: if you sell stock or securities at a loss and within a period beginning 30 days before the sale date and ending 30 days after the sale date you acquire substantially identical stock or securities (or a contract or option to do so), the loss is disallowed for the year of sale.

The 61-day count includes the day of the sale itself. A sale on November 1 produces a window from October 2 through December 1. Any substantially identical acquisition anywhere in that span — before or after the sale — blocks the loss. The pre-sale window matters because the rule is designed to prevent "round-tripping": buying shares, watching them drop, pre-positioning a purchase to ensure you stay invested, and then selling to claim the loss while never genuinely exiting the position.

What "acquire" means

The trigger is acquiring substantially identical stock or securities, not just buying them. Acquiring a call option on the same stock, receiving shares through an employee stock plan, having an automatic dividend reinvestment plan (DRIP) buy shares, or exercising options can all constitute an acquisition that triggers the rule — even if the transaction was automatic or you weren't thinking about the wash-sale window. Some traders are surprised to discover their DRIP purchases in December triggered a wash sale on a voluntary loss harvest they made that same month.

Calendar timeline example

Imagine selling 200 shares of Acme Corp (ACM) on September 15 at a loss. Your wash-sale window runs from August 16 through October 15 — 61 days centered on September 15. Any of the following would disallow the loss: buying 200 shares of ACM on August 25 (pre-sale); buying 200 shares of ACM on September 20 (post-sale); buying a call option on ACM for October expiry on September 16; having a DRIP purchase of ACM execute on October 1. Buying 200 shares of a different company in the same sector on October 1 would not trigger the rule. Buying 200 shares of ACM on October 16 — one day past the window — would not trigger it either, and the original September 15 loss would be fully deductible.

Practical checklist

• Mark your calendar 30 days out from any intended tax-loss sale; plan any repurchase of the same stock to fall on day 31 or later.
• Check whether you have any DRIPs or automatic purchase plans running on the security you plan to sell at a loss — DRIP purchases inside the window count as acquisitions.
• Remember that the pre-sale window applies too: if you buy shares on day −28 and then sell at a loss on day 0, you already triggered a wash sale before you sold.

What "Substantially Identical" Actually Means

The IRS has deliberately not defined "substantially identical" with a bright line, and the courts have developed the concept through cases rather than a single test. The practical guidance that has emerged distinguishes a small set of clear cases from a much larger gray zone.

Clear cases: substantially identical

• Same stock ticker, any quantity. Selling 100 shares of XYZ and buying 50 shares of XYZ within the window is a partial wash sale disallowing 50% of the loss (the proportion of shares repurchased).
• Call options on the same stock. An option to buy the same underlying stock is generally treated as substantially identical to the stock itself, particularly if it is deep in the money or exercisable shortly.
• Convertible preferred stock or bonds. If preferred stock or a bond is convertible into common stock of the same company on favorable terms, it can be substantially identical to the common shares — though the IRS evaluates the specific conversion terms and market price relationship.

Clear cases: not substantially identical

• Different company in the same sector. Selling Ford and buying General Motors, or selling JPMorgan and buying Bank of America, is not a wash sale even if both are in the same industry. The securities are not from the same issuer.
• ETFs tracking the same index as the sold stock. Selling Apple and buying an S&P 500 ETF that holds Apple as a major constituent is not a wash sale — the ETF represents a basket of many securities. Similarly, selling an S&P 500 ETF from one fund family and buying a different fund family's S&P 500 ETF is generally not a wash sale, though the IRS has not issued a definitive ruling on ETF swaps and some practitioners apply extra caution.
• Bonds with materially different terms. Corporate bonds from the same issuer that differ significantly in maturity date, coupon rate, or seniority are generally treated as different securities.

The gray zone

Two situations draw the most practical uncertainty. First, swapping between two ETFs that track the same index from different providers — such as moving from one S&P 500 ETF to another — is widely treated by practitioners as not substantially identical, but the IRS has not ruled definitively. Second, selling a stock and buying a single-stock ETF on that same stock would almost certainly be substantially identical, since the wrapper holds only the security you sold. When in doubt, consult a tax professional rather than relying on general guidance that may not apply to your specific instruments.

Practical checklist

• To stay in the market while the wash-sale window closes, buy a different company in the same sector rather than the same stock, or buy a broad index ETF rather than a same-index ETF from a different provider if you want the most conservative treatment.
• Avoid buying call options on the stock you just sold at a loss during the 61-day window — this is a frequently overlooked trigger.
• If you hold both common stock and convertible preferred of the same company, understand that a loss sale of the preferred might be washed by a purchase of the common (or vice versa) if the conversion terms are favorable.

How the Disallowed Loss Affects Your Cost Basis

A disallowed wash-sale loss is not gone — in most cases it is deferred. The mechanics of the deferral run through the cost basis of the replacement shares you acquired during the wash-sale window.

The basis-adjustment rule

Under IRC §1091(d), the amount of the disallowed loss is added to the adjusted cost basis of the replacement shares. When you eventually sell those replacement shares — assuming you do not trigger another wash sale at that point — the higher basis reduces the gain (or increases the loss) you recognize on the new sale, effectively recovering the deferred amount.

The holding period also transfers: the period during which you held the original shares is added to the holding period of the replacement shares. This can matter significantly for long-term vs. short-term capital gains treatment.

Worked Example 1: Basic wash sale

You buy 100 shares of ABC Corp at $50 per share ($5,000 basis). The stock drops to $40 per share. You sell all 100 shares for $4,000, realizing a $1,000 loss. Ten days later you buy 100 shares of ABC Corp again at $38 per share ($3,800).

• The $1,000 loss is disallowed under §1091.
• Your replacement shares' adjusted basis: $3,800 (purchase price) + $1,000 (disallowed loss) = $4,800.
• If you sell those 100 shares later at $50 per share ($5,000), your recognized gain is $5,000 − $4,800 = $200 (rather than $1,200 if no adjustment had been made). The $1,000 deferral has been recovered.

Worked Example 2: Partial wash sale

You sell 200 shares of DEF Corp at a $2,000 total loss. Within the window you buy back only 100 shares (half the quantity). The wash sale applies proportionally: $1,000 of the loss is disallowed (the half corresponding to the repurchased shares) and $1,000 is deductible. The 100 replacement shares receive a $1,000 basis adjustment, bringing their adjusted basis to purchase price plus $1,000.

Practical checklist

• Keep records of which sales triggered wash sales and what basis adjustments you made, because your broker's 1099-B will only show within-account adjustments — the cross-account ones are your responsibility to track and carry forward.
• Note the holding period transfer: if original shares were held more than a year before the wash sale, that long-term holding period carries over to the replacement shares, which can affect your tax rate on the eventual sale.
• If you sell replacement shares at a gain, the basis adjustment works in your favor by reducing that gain — the deferral isn't just neutral, it's ultimately a real deduction recovered.

Wash Sales Across Accounts — Including the IRA Trap

The wash-sale rule does not care which account you use for the repurchase. It applies across all accounts you own and, by IRS interpretation, extends to accounts controlled by your spouse.

Spouse's accounts

If you sell stock at a loss and your spouse buys substantially identical stock in their individual brokerage account within the 61-day window, the wash sale rule disallows your loss — even though the accounts are legally separate. The IRS treats the two spouses as one taxpayer for wash-sale purposes on their joint return. This cross-spousal tracking is entirely invisible to both brokers, which means neither 1099-B will flag the problem, and the combined error does not surface until — or unless — you or a tax preparer reconcile the accounts manually.

The IRA permanent-loss scenario

The most severe version of the cross-account problem involves retirement accounts. Under IRC §1091(d), when a wash sale disallows a loss, the disallowed amount is added to the basis of the replacement shares "in the hands of the taxpayer." An IRA is not taxed in the same hands as a taxpayer's ordinary account — gains inside a traditional IRA are not taxed until withdrawal, and Roth IRA gains are never taxed. Because there is no tax-basis tracking mechanism inside an IRA that corresponds to the taxpayer's personal cost basis, there is no way to recover the disallowed loss through a future IRA sale.

The result: if you sell shares at a $3,000 loss in your taxable account and your traditional IRA or Roth IRA buys substantially identical shares within 30 days, the $3,000 loss is disallowed — and permanently gone. No basis adjustment is available. No future deduction recovers it. The IRA wash sale is widely considered one of the most costly and least understood traps in individual tax law.

The same analysis applies in reverse direction: if your IRA sells and your taxable account buys, or if your Roth IRA buys and your taxable account had previously sold. Retirement accounts on either side of the window create the permanent-loss problem.

Practical checklist

• Before tax-loss harvesting in a taxable account, check both your own and your spouse's brokerage and retirement accounts for recent or planned purchases of the same security.
• If you use automatic rebalancing inside an IRA, be aware that a rebalance purchasing a stock you recently sold at a loss in a taxable account may create a permanent wash-sale loss you cannot recover.
• There is no workaround for IRA wash sales once they happen — the loss is gone. Prevention through awareness and timing is the only available protection.

Year-End Timing Issues

Tax-loss harvesting is most commonly attempted in November and December, which is exactly when the year-end wash-sale timing trap is most dangerous. The rule creates a disconnect between the calendar year and the wash-sale window that catches many traders in January.

The December-January problem

Consider a sale on December 15. The 30-day post-sale window extends through January 14 of the following year. Any substantially identical purchase made in any covered account between December 15 and January 14 will disallow the December loss. The disallowed loss does not appear on the current year's tax return; instead, it becomes a basis adjustment to the January replacement shares, carrying into the new tax year.

The timing mismatch is compounded by the fact that many investors mentally reset at January 1 — they assume a December loss sale is complete and settled when the new year begins, and they feel free to repurchase their desired position. The IRS does not reset at January 1.

The pre-sale window in late November

The 30-day pre-sale window is equally relevant at year-end. A purchase of a stock on November 28 starts a pre-sale window that, if followed by a loss sale of the same stock before December 28, retroactively triggers a wash sale on that purchase. If your November purchase was meant to add to a position and you then decide to harvest a loss before year-end, you may find the pre-sale window has already closed the opportunity.

Practical checklist

• For a December tax-loss sale to be clean, you must wait 31 calendar days after the sale date before repurchasing — which means January 15 or later for a December 15 sale.
• If you want to maintain market exposure during the January wait, buy a non-substantially-identical alternative (a different company or a different-index ETF) immediately after the sale, then swap back into the original security on day 31.
• Review any purchases of the security made in late November before executing a December loss sale — you may already be inside the pre-sale window for some of those shares.

How Brokers Report Wash Sales on Form 1099-B

Brokers are required by IRS regulations to track wash sales within a single account and report them on Form 1099-B, the annual statement that covers proceeds from broker transactions. Understanding what brokers do — and do not — report is essential for anyone trading in more than one account.

What appears on the 1099-B

When a broker detects a wash sale within the same account, it reports the disallowed loss amount in Box 1g of Form 1099-B ("Wash sale loss disallowed") and adjusts the cost basis of the replacement shares to include the disallowed amount. Those adjusted transactions flow to Form 8949 on your tax return, identified with adjustment code "W." If you use tax software that imports 1099-B data directly, the wash-sale adjustment should carry through automatically — but only for transactions your broker actually tracked.

The critical tracking gap

Brokers are required to track wash sales only within a single account at their own firm. They are not required to detect wash sales across:

• Two taxable accounts at the same broker held by the same person.
• Accounts at different brokers (e.g., Fidelity and Schwab).
• Your taxable accounts and your own IRA or Roth IRA.
• Your account and your spouse's account.

If you sell at a loss at Broker A on November 5 and buy the same stock at Broker B on November 10, you have a wash sale — but both 1099-Bs will show the transactions without any wash-sale flag. The adjustment must be made manually on Form 8949, and failing to make it is a real tax reporting error even if neither broker flagged it.

Practical checklist

• Do not assume that because your 1099-B shows no wash-sale adjustment in Box 1g, no wash sale occurred — it only means your broker didn't see one within that single account.
• If you trade in multiple accounts, maintain a separate spreadsheet or use third-party tax software that aggregates all accounts and applies wash-sale rules across them before generating your 8949.
• When reviewing your 1099-B, also look at the adjusted cost basis figures for replacement shares — a basis that seems higher than what you paid is the sign of a wash-sale adjustment your broker did catch.

Short Sales, Bonds, and Less Common Securities

The wash-sale rule extends beyond simple buy-sell-repurchase transactions with common stock. Several less common trading patterns interact with §1091 in ways worth understanding.

Short sales

IRC §1091(e) extends wash-sale rules to short sales. If you close a short sale at a loss and within the 61-day window you open another short sale in the same substantially identical security, the loss on the closed short is disallowed. Similarly, if you already hold the substantially identical security long before closing the short at a loss, the pre-existing long position can trigger the wash sale. Short sellers doing tax-loss management at year-end face the same window considerations as long sellers, applied to both the timing of closing shorts and the timing of opening new ones.

Bonds

The wash-sale rule applies to bonds as well as stocks — they are "securities" for §1091 purposes. However, two bonds from the same issuer are generally not substantially identical if they differ materially in maturity date, coupon rate, or face value. A 5-year corporate bond and a 10-year corporate bond from the same company are typically treated as different securities, making a bond swap between different maturities a viable tax-loss harvesting technique for fixed-income portfolios. Bonds that are identical in all material terms (same issuer, same maturity, same coupon) would be substantially identical and a wash sale.

Convertible bonds and preferred stock

Convertible bonds or convertible preferred stock of the same company can be substantially identical to the common stock, particularly when the conversion is at or in the money and economically equivalent to holding the common. The IRS evaluates the specific terms; positions that are deeply out of the money on their conversion feature are less likely to be treated as substantially identical to the common stock they could theoretically convert into.

Practical checklist

• If you harvest a loss on a short position by closing it, be careful about re-opening a short in the same security within 61 days — treat it the same as a repurchase by a long holder.
• Bond swaps for tax-loss purposes generally work, as long as the replacement bond has materially different terms (maturity, coupon, or both) from the one sold.
• If you hold a convertible security and the underlying common, a loss sale of one may be washed by a purchase of the other if the conversion is economically close to par.

Cryptocurrency and the Wash-Sale Rule: Current Law and Legislative Risk

As of mid-2026, cryptocurrency is not subject to the wash-sale rule. The reason is definitional: IRC §1091 applies to "stock or securities" as defined under the Securities Exchange Act and the Internal Revenue Code, and the IRS classifies digital assets — including Bitcoin, Ethereum, and altcoins — as property rather than securities. Property falls outside §1091's scope.

The current crypto exemption in practice

This means crypto investors can sell a Bitcoin position at a loss on Monday and repurchase the identical amount of Bitcoin on Tuesday, recognizing the full tax loss while never actually leaving the position — a strategy called "bed and breakfast" trading in some jurisdictions and simply "tax-loss harvesting without the wait" in the crypto community. No 61-day wait, no substantially-identical analysis, no wash-sale disallowance. The same flexibility applies to all tokens and coins currently treated as property.

Legislative risk

Congress has introduced multiple bills that would close the crypto wash-sale loophole by extending §1091 to digital assets. The Digital Asset Market Structure and Investor Protection Act, introduced in 2021, was one of the earliest proposals. The 2022 Inflation Reduction Act included a crypto wash-sale provision that was ultimately removed before passage. As of mid-2026, the push has renewed: multiple bipartisan proposals are in the legislative pipeline, including measures that would apply wash-sale rules to crypto while also providing stablecoin and staking relief. No bill has cleared both chambers. But the direction of legislative intent has been consistently toward extension — the current exemption exists because Congress hasn't acted yet, not because Congress intends the exemption to be permanent.

For a detailed breakdown of the legislative proposals and how they would affect specific crypto tax strategies, see our companion page: The Wash-Sale Rule and Crypto.

Practical checklist

• Crypto tax-loss harvesting is currently unrestricted by wash-sale rules — but monitor legislative developments, because a bill extending §1091 to digital assets could take effect for transactions on or after the date of enactment, potentially with little lead time.
• Note that crypto is still subject to other tax rules: short-term vs. long-term capital gains rates apply based on holding period, and every sale or exchange is a taxable event even if the wash-sale rule does not apply.
• Do not assume that wash-sale-free crypto harvesting also applies to crypto securities (tokenized stocks, some structured products) — those may already be "securities" for §1091 purposes depending on how they are structured and regulated.

Misconceptions vs. Reality

Common Mistakes

The most consequential wash-sale errors cluster around three patterns.

Harvesting a loss and buying back too soon. The most common mistake is simply miscounting the window. Traders who think "I'll wait a month" and repurchase on day 28 or 29 have made a wash sale and don't realize it until their 1099-B arrives. Day 31 is the first safe repurchase date after a loss sale; day 30 is still inside the window.

Ignoring IRA and spouse purchases. Most tax-loss harvesting guides focus on the same taxable account. The more experienced and diversified a household's accounts become, the more likely a repurchase somewhere in the family's combined account structure will inadvertently trigger a wash sale — especially with IRAs, where the result is a permanent loss with no recovery.

Trusting the 1099-B as the final word on wash sales. The 1099-B reporting requirement creates a false sense of completeness. If your broker flagged some wash sales and not others, you could interpret the flagged ones as the full picture. In reality, any cross-account transaction in the same security during the window is a real wash sale whether or not it shows on any tax form. The obligation to report correctly falls on the taxpayer regardless of broker reporting.

Pre-Sale Wash-Sale Checklist

Before executing any tax-loss sale, work through this list:

1. Check the pre-sale window (past 30 days). Have you purchased or received substantially identical shares in any account in the last 30 days? If yes, a wash sale for those lots is already locked in — you can still sell, but the loss corresponding to recently acquired lots will be disallowed.
2. Check all accounts in the household. Include your own taxable and IRA accounts and your spouse's taxable and IRA accounts. A purchase in any of these within the window triggers the rule.
3. Check for DRIP or automatic purchases. If any account has dividend reinvestment or automatic periodic purchases of the same security enabled, verify the next scheduled purchase falls outside the post-sale window, or pause it temporarily.
4. Identify your replacement position. Choose a non-substantially-identical security that provides similar market exposure — a different company, or a broader index ETF if you want sector exposure — and be ready to buy it immediately after the loss sale to avoid losing market exposure during the wait.
5. Calendar the repurchase date. Mark day 31 on your calendar. A sale on the 15th means the earliest clean repurchase is the 16th of the following month.
6. If year-end, plan into January. For December sales, the post-sale window crosses into January. Plan your calendar accordingly — "year-end" does not mean the rule ends at December 31.
7. Document the basis adjustment. Record the disallowed loss amount and the adjusted basis of your replacement shares in a spreadsheet outside your broker's system, so the adjustment is available at tax time regardless of what any 1099-B shows.

Frequently Asked Questions

Sources and Methodology

This guide describes the wash-sale rule as codified in IRC §1091 and as interpreted under publicly available IRS guidance and related case law, reviewed as of August 2026. Key sources include:

• Internal Revenue Code §1091 (Loss from wash sales of stock or securities) — the controlling statute. The full text is available at uscode.house.gov.
• IRS Publication 550 (Investment Income and Expenses) — the IRS's own plain-language guidance on wash sales, including worked examples and the substantially-identical framework.
• Treasury Regulation §1.1091-1 — the implementing regulation providing detail on basis adjustments and holding period rules.
• IRS guidance on 1099-B reporting — including Revenue Procedure guidance on covered security cost basis reporting requirements and Box 1g wash-sale disclosure.
• Congressional proposals 2021–2026 — including the Digital Asset Market Structure and Investor Protection Act (2021), the Inflation Reduction Act's removed crypto wash-sale provision (2022), and multiple 2025–2026 proposals tracked via CNBC reporting dated July 2026 and related coverage.

This content was reviewed by the Swoopr Editorial Team in August 2026 and reflects publicly available information at that time. Tax law can change; verify current rules with a qualified tax professional or the IRS before making tax-related decisions. This guide is for educational purposes only and does not constitute personalized tax or investment advice.

Conclusion

The wash-sale rule does exactly what it was designed to do: prevent the recognition of a tax loss from a sale that isn't a real economic exit from a position. Understanding it requires going beyond the basic "don't buy back for 30 days" summary — the window is 61 days not 30, it applies across all accounts in the household (including IRAs, where the consequence is a permanent loss), it extends into the new year regardless of calendar-year accounting, and the broker's 1099-B only captures a subset of the wash sales that legally exist. For active traders and year-end tax-loss harvesters, the details here are the difference between a real deduction and a disallowed one that won't show up until tax season. Keep records across all accounts, plan the window with a calendar, and treat the IRA scenario as a hard stop rather than something to think about after the fact.

Related Reading

• Stock & Investment Taxes — the parent hub for this content group, covering capital gains rates, holding periods, and the full range of stock tax topics.
• Tax-Loss Harvesting for Stocks — how to systematically harvest losses within the constraints the wash-sale rule creates, including replacement security strategies.
• The Wash-Sale Rule and Crypto — why crypto is currently exempt, a detailed breakdown of the 2025–2026 legislative proposals, and what traders should watch for.