Tax answers · IRC §1091
When Does A Wash Sale Prevent A Stock-Loss Deduction?
A wash sale can disallow a loss when you sell stock or securities at a loss and acquire substantially identical stock or securities within 30 days before or after the sale. The window crosses calendar years. A December sale does not become safe merely because the replacement purchase occurs in January.
Review Purchases As Well As Sales
The rule can involve purchases made before the loss sale. Automatic dividend reinvestment, recurring investments, and activity in other accounts can matter. A single brokerage statement may not describe every transaction relevant to your return.
Understand Where The Disallowed Loss Goes
In a typical taxable-account wash sale, the disallowed loss is added to the replacement security’s basis, affecting a later sale. Different treatment can apply when the replacement is acquired in an IRA. Do not assume every disallowed loss is available to deduct next year.
Coordinate Records Before Tax-Loss Harvesting
Review the security, dates, quantities, and accounts involved before deciding how a proposed sale will be reported. A tax objective should be considered alongside your investment objectives; this explanation does not recommend a purchase or sale.
What To Gather Before The Conversation
- Purchase and sale confirmations
- All relevant account statements
- Dividend reinvestment activity
- Broker basis adjustments and prior carryforwards
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Source And Scope
IRS Publication 550 — Investment Income and Expenses. Use the rules and instructions for the tax year involved. This overview does not cover every exception and is general information, not a conclusion about a particular return.
Continue in the Guide: Chapter 24.