Wash Sale Rule
The US wash sale rule disallows a loss if you buy the same or a substantially identical security within 30 days. Learn how it works, cost basis effects and traps.
The wash sale rule is a US tax rule that stops investors from claiming a tax loss while effectively keeping the same position. If you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed for now. It is not lost forever: it is added to the cost basis of the replacement shares. Active traders, who often buy and sell the same stocks repeatedly, can trigger wash sales constantly without realising it. This is educational information, not tax advice.
The rule in brief#
| Element | Detail |
|---|---|
| Trigger | Selling at a loss and acquiring substantially identical securities within 30 days before or after the sale |
| Window | 61 days in total: 30 days before, the sale day, and 30 days after |
| Effect | The loss is disallowed and added to the cost basis of the replacement shares |
| Holding period | The replacement's holding period includes the original shares' holding period |
| Applies to | Stocks, ETFs, mutual funds, options and other securities |
A worked example#
What counts as substantially identical?#
| Situation | Usually a wash sale? |
|---|---|
| Same stock | Yes |
| Call options on the same stock | Can be, since options to acquire the stock count |
| Shares bought in an IRA or spouse's account | Yes, according to IRS guidance |
| A different company in the same industry | Generally no |
| Two ETFs tracking the same index from different issuers | Unclear; opinions differ and the IRS has not given precise guidance |
| An ETF tracking a different index | Generally no |
Traps for active traders#
- Repeated trading of one stock: frequent buys and sells chain wash sales together, moving losses into later positions.
- Year end: a loss in late December followed by a repurchase in early January can push the loss into the next tax year, or beyond if the chain continues.
- Automatic reinvestment: dividend reinvestment within the window can create small wash sales.
- Multiple accounts: brokers track wash sales only within one account; you are responsible across all your accounts, including IRAs.
- IRA purchases: a loss disallowed because of a purchase in an IRA may be permanently lost, since basis in an IRA does not generate deductible losses later.
Where it does not apply#
| Product | Status |
|---|---|
| Section 1256 contracts (regulated futures, broad index options) | Wash sale rule does not apply. See Trading Taxes and Capital Gains |
| Traders with a valid Section 475(f) mark to market election | Not applied to securities covered by the election |
| Crypto | Under current law, the rule has applied to securities, and crypto has been treated as property, though proposals have sought to change this; check the latest rules |
| Gains | The rule only affects losses |
Not to be confused with wash trading#
Wash trading is illegal market manipulation, trading with yourself to create fake volume. The wash sale rule is a tax rule. See Wash Trading.
Managing wash sales#
- Wait 31 days before rebuying if you want to realise a loss.
- Buy a similar but not identical investment during the waiting period. See Tax-Loss Harvesting.
- Check all accounts, including retirement and spouse accounts.
- Review broker reports of wash sales on Form 1099 B.
- Use software or a professional to track wash sales across accounts. See Record Keeping for Traders.
Frequently asked questions#
What is the wash sale rule?#
A US tax rule that disallows a loss on a security if you buy the same or a substantially identical security within 30 days before or after selling it.
Is a wash sale loss gone forever?#
Usually not; it is added to the cost basis of the replacement shares, reducing a future gain or increasing a future loss, except in cases such as repurchases in an IRA.
Does the wash sale rule apply to futures?#
No. It does not apply to Section 1256 contracts such as regulated futures.
Next, learn how to use losses to reduce taxes in Tax-Loss Harvesting.
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- Trading Glossary A to ZReference