A wash sale occurs when a taxpayer sells a security at a loss and then buys the same or a substantially identical security within 30 days before or after the sale date.
➡️ The IRS disallows the loss to prevent taxpayers from claiming a deduction while effectively maintaining the same investment position.
⏱️ The 30‑Day Wash Sale Window
The wash sale period includes:
- 📅 30 days before the sale
- 📅 The day of the sale
- 📅 30 days after the sale
✅ Total window: 61 days
💰 Tax Treatment of a Wash Sale
- ❌ The capital loss is not deductible in the year of the sale
- ➕ The disallowed loss is added to the cost basis of the replacement security
- ⏳ This defers the loss until the replacement security is sold
- 🔄 The holding period from the original security carries over to the replacement security
📌 The loss is not eliminated—it is postponed.
📌 Example
- 💵 Original purchase price: $1,000
- 📉 Sold for: $700 (loss of $300)
- 🔁 Repurchased the same stock within 30 days for: $750
✅ Result:
- ❌ The $300 loss is disallowed
- ➕ New cost basis: $750 + $300 = $1,050
- ⏳ The loss is deferred until the replacement stock is sold
🧾 How to Report a Wash Sale
✅ Form 8949 – Sales and Other Dispositions of Capital Assets
Report only the sale that triggered the wash sale:
- 📝 Column (f): Enter code “W”
- 💲 Column (g): Enter the disallowed loss amount
- 📉 Basis of the replacement security is adjusted separately
✅ Schedule D – Capital Gains and Losses
- Totals from Form 8949 carry over to Schedule D
- Wash sales affect the overall capital gain or loss calculation
🚫 What About the Replacement Security?
- 🛑 The purchase of the replacement security is not reported on Form 8949
- ❌ No wash sale code applies to the purchase
- ✅ When the replacement security is later sold:
- The adjusted basis (including the deferred loss) is used
- The deferred loss is recognized at that time