Wash sale rule

The window is 61 days: the 30 days before the sale, the day of the sale and the 30 days after. A purchase of the same stock or security, or one the IRS treats as substantially identical, anywhere in that window makes the sale a wash sale, and the loss on it cannot be claimed that year. A purchase on the 31st day is outside the window.

The disallowed loss is added to the basis of the shares that were bought, and the holding period of the shares sold carries over to them. When fewer shares are bought back than were sold, only the loss on the matching number of shares is disallowed; the rest is claimed as usual.

The rule reaches across accounts owned by the same person, and the IRS applies it to shares bought in a spouse's account. It applies only to losses; a sale at a gain is taxed whether or not the shares are bought again.

100 shares bought at $50 are sold at $40, a loss of $1,000. Twenty days later, 100 shares of the same stock are bought at $42. The purchase is inside the 61-day window, so the $1,000 loss is disallowed for that year.

The new lot's basis is the $4,200 paid plus the $1,000 disallowed, $5,200. If those shares are later sold at $55, the gain is $5,500 minus $5,200, $300, rather than the $1,300 it would be without the adjustment. The loss is recognized then, inside the smaller gain.

Sale, 100 sh × $40

$4,000

Basis, 100 sh × $50

− $5,000

Loss, disallowed

− $1,000

Replacement, 100 sh × $42

$4,200

Disallowed loss added

+ $1,000

Adjusted basis of the new lot

$5,200

The rule is what stands between a loss on paper and a loss on a tax return. A sale at a loss followed by a purchase inside the window leaves the position where it was and the loss unclaimed for the year, so the date of every purchase of the same security, before the sale as well as after, decides whether the loss counts.

Because the loss moves into the replacement lot's basis, it is deferred. The adjusted basis lowers the gain, or raises the loss, on whatever sale finally closes the position.

Taiga Finance makes no trades and flags no wash sale. A connected holding's drawer lists each lot with its Acquired date, Shares, Value, Gain $ and Term, and a “Cost basis” worksheet with each lot's date, shares and cost per share, so the purchases around a sale can be read off it. On a holding entered by hand, “Cost basis” is an editable field.