Quick Answer
The wash sale rule prohibits claiming a tax loss if you buy the same or substantially identical security within 30 days before or after selling it at a loss. The rule prevents taxpayers from claiming artificial losses while maintaining the same investment position. Violated wash sales result in the loss deduction being disallowed and added to the cost basis of the replacement security.
Best Answer
Robert Kim, Tax Return Analyst
Investors who buy and sell stocks, bonds, or mutual funds and want to understand how the wash sale rule affects their tax deductions
What exactly is the wash sale rule?
The wash sale rule, found in IRC Section 1091, prevents taxpayers from claiming a capital loss deduction when they sell a security at a loss and then repurchase the same or "substantially identical" security within 61 days (30 days before or 30 days after the sale date).
The rule exists to prevent artificial tax losses. Without it, investors could sell losing stocks on December 31st to claim the loss, then buy them back on January 1st to maintain their investment position while still getting the tax benefit.
How the wash sale rule works in practice
When a wash sale occurs, two things happen:
1. The loss deduction is disallowed — you cannot claim it on your current tax return
2. The disallowed loss is added to the cost basis of the replacement security
This means the loss isn't permanently lost — it's deferred until you sell the replacement security without triggering another wash sale.
Example: $10,000 stock loss scenario
Let's say you bought 100 shares of XYZ Company at $100 per share ($10,000 total) in March. By December, the stock has fallen to $70 per share. You sell all 100 shares for $7,000, creating a $3,000 capital loss.
If you repurchase 100 shares of XYZ within 30 days at $72 per share ($7,200 total), you've triggered a wash sale:
Your new cost basis becomes $10,200 ($7,200 purchase price + $3,000 disallowed loss). When you eventually sell these shares, the $3,000 loss will be factored into your gain or loss calculation.
What counts as "substantially identical"?
The IRS hasn't provided a comprehensive definition, but these generally trigger wash sales:
These generally DON'T trigger wash sales:
The 61-day window explained
The wash sale period extends 30 days before AND 30 days after the sale date, plus the sale date itself — creating a 61-day window. This catches investors who might buy shares before year-end intending to sell them for a loss.
Special considerations for retirement accounts
Buying the same security in an IRA or 401(k) within the wash sale window also triggers the rule, but the consequences are worse. Since you can't add basis to tax-advantaged accounts, the loss is permanently disallowed rather than deferred.
What you should do
To avoid wash sale violations:
Consider using our return scanner to identify any wash sale violations you may have missed on previous returns.
Key takeaway: The wash sale rule disallows loss deductions when you repurchase the same security within 61 days, but the loss is added to your new cost basis and can be claimed later — unless the repurchase is in a retirement account.
*Sources: [IRC Section 1091](https://www.law.cornell.edu/uscode/text/26/1091), [IRS Publication 550](https://www.irs.gov/pub/irs-pdf/p550.pdf)*
Key Takeaway: The wash sale rule prevents claiming tax losses when you repurchase the same security within 61 days, but the loss is deferred to your new cost basis rather than permanently lost.
Common scenarios that do and don't trigger wash sale violations
| Scenario | Wash Sale? | Why? |
|---|---|---|
| Sell Apple stock, buy Apple stock 20 days later | YES | Same security within 30 days |
| Sell Apple stock, buy Microsoft stock next day | NO | Different companies |
| Sell VTI ETF, buy VTSAX mutual fund 15 days later | MAYBE | Both track same index - substantially identical |
| Sell stock in taxable account, buy in IRA 10 days later | YES | Same security, different account types still count |
| Sell at loss Dec 31, spouse buys same stock Jan 15 | YES | Spouse transactions count |
| Sell individual stock, buy sector ETF | NO | ETF contains many stocks - not substantially identical |
More Perspectives
Michelle Woodard, Tax Policy Analyst
Older investors who are actively managing portfolios and may be doing frequent rebalancing or dividend reinvestment
Special wash sale considerations for retirees
As someone managing retirement investments, you face unique wash sale challenges that younger investors don't typically encounter.
Dividend reinvestment plans (DRIPs)
Many retirees use dividend reinvestment plans, which can trigger unexpected wash sales. If you sell shares at a loss while dividends are automatically reinvesting in the same stock, you've violated the wash sale rule.
Example: You own 500 shares of a dividend stock that pays quarterly. You sell 200 shares at a $2,000 loss on December 20th. If the company pays a dividend on January 15th that automatically buys 5 new shares, your entire $2,000 loss is disallowed because of those 5 shares.
Required minimum distributions (RMDs)
RMDs from traditional IRAs and 401(k)s don't trigger wash sales when you sell the same securities in taxable accounts. However, if you're taking in-kind distributions (receiving actual securities rather than cash), then selling those securities at a loss could create complications.
Estate planning implications
If you're gifting securities to family members, be aware that wash sale rules can apply to your spouse's transactions. Sales by your spouse within the 61-day window will trigger wash sale treatment for your losses.
Medicare premium impact
Since wash sale violations reduce your allowable losses, they can increase your adjusted gross income (AGI). For high-income retirees, this could trigger higher Medicare Part B and Part D premiums (IRMAA surcharges) two years later.
Bottom line for retirees: Turn off automatic dividend reinvestment before selling stocks at a loss, and coordinate any tax-loss harvesting with your spouse's trading activity.
Key takeaway: Retirees must watch for wash sale triggers from dividend reinvestment plans and coordinate loss harvesting with spouses to avoid accidentally disallowing valuable tax deductions.
Key Takeaway: Retirees must watch for wash sale triggers from dividend reinvestment plans and coordinate loss harvesting with spouses to avoid accidentally disallowing valuable tax deductions.
Robert Kim, Tax Return Analyst
Newer investors using apps like Robinhood, fractional shares, and automated investing who may not realize they're triggering wash sales
Wash sale traps for young investors
If you're using modern investing apps and automated features, you're probably triggering wash sales without realizing it.
Fractional shares create problems
Many apps let you buy fractional shares with automatic investments or dividend reinvestment. Even buying 0.1 shares of the same stock within 30 days of a loss sale triggers the wash sale rule.
Example: You sell your 10 shares of Tesla at a $500 loss on December 30th. Your app automatically invests $25 in Tesla on January 15th, buying 0.15 shares. Your entire $500 loss is now disallowed.
Robo-advisors and target-date funds
Robo-advisors that automatically rebalance portfolios can trigger wash sales when they sell one ETF at a loss and buy a substantially identical one. Target-date funds that shift allocations can create similar issues.
Multiple account problems
Young investors often have:
Buying the same stock in your Roth IRA after selling it at a loss in your taxable account triggers a wash sale, and the loss is permanently gone (not deferred).
Tax-loss harvesting apps
Some apps offer automatic tax-loss harvesting, but they don't always coordinate across all your accounts. You could sell VTI (total stock market ETF) for a loss in one account while your 401(k) continues buying a similar total market fund.
What young investors should do
1. Turn off auto-investing 30 days before and after selling anything at a loss
2. Coordinate across all accounts — track what you're buying everywhere
3. Use different but similar ETFs for tax-loss harvesting (VTI vs. SWTSX)
4. Keep detailed records — apps don't always report wash sales correctly
Key takeaway: Modern investing features like fractional shares, auto-investing, and multiple accounts make wash sale violations extremely common for young investors — but they're preventable with careful planning.
Key Takeaway: Modern investing features like fractional shares, auto-investing, and multiple accounts make wash sale violations extremely common for young investors — but they're preventable with careful planning.
Sources
- IRC Section 1091 — Tax code section defining wash sale rules
- IRS Publication 550 — Investment Income and Expenses
Related Questions
Reviewed by Robert Kim, Tax Return Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.