Wash sale

How it works

The rule sits in section 1091 of the Internal Revenue Code, and IRS Publication 550 (2025) is the readable version of it. A wash sale happens when you sell or trade stock or securities at a loss and, within 30 days before or after the sale, you buy substantially identical stock or securities, acquire them in a fully taxable trade, acquire a contract or option to buy them, or acquire them for your IRA or Roth IRA. A purchase by your spouse or by a corporation you control counts too. That is a 61-day window centred on the sale, and the 30 days before it are the half people forget.

The loss is deferred, not destroyed — with one exception. The disallowed amount is added to the cost of the replacement shares, and the holding period of the shares sold carries over to them. Publication 550's own example: buy 100 shares for $1,000, sell for $750, buy 100 again within 30 days for $800. The $250 loss is not deductible, and the new basis is $1,050. The exception is the IRA. Rev. Rul. 2008-5 holds that a replacement bought inside an IRA or Roth IRA disallows the loss and does not increase the basis in the IRA, so the deferral has nowhere to land.

Partial matches are matched in order. If the replacement purchases are more or fewer shares than were sold, shares bought are matched against shares sold in the order they were bought, and only the matched ones are subject to the rule. The disallowed loss is then spread across the replacement lots in proportion — which is why one sale can change the basis of several separate lots, some of them bought before it.

Options and short sales are in scope. The rule covers losses on contracts and options to buy or sell stock or securities, and a loss on a short sale where substantially identical stock is sold or shorted within 30 days either side of the date the short sale is complete — which, if you already held identical shares when you shorted and later deliver them to close, is the day you entered it rather than the day you closed it. It does not cover commodity futures contracts or foreign currencies. "Substantially identical" is decided on the facts: ordinarily one company's stock is not substantially identical to another's, and a convertible preferred can be identical to the common it converts into.

What the broker reports, and what it does not

The rule applies to the taxpayer. The broker's report of it is narrower, and the gap between the two is the whole reason this word appears on software pages.

Publication 550 spells out when Form 1099-B shows a disallowed wash-sale loss in box 1g: when the securities sold were covered securities, and the replacement had the same CUSIP number and was bought in the same account. A wash sale outside those two conditions is still a wash sale, and the form is not built to show it. The publication says so in as many words: you cannot deduct a loss from a wash sale even if it is not reported on Form 1099-B.

So the cases the broker cannot see are exactly the common ones for anybody with more than one account:

• a loss in a taxable account at one broker, and the same stock bought at another;
• a loss in a taxable account, and the same stock bought in your own IRA the same week — the case Rev. Rul. 2008-5 settles, and the one where the disallowed loss is added to no basis at all;
• a loss on shares, and a call option on the same stock bought inside the window;
• a spouse's account.

Each of these is reported by you, on Form 8949, with code W in column (f) and the disallowed amount as a positive number in column (g). A form built on one account and one CUSIP will not have done it for you.

The form has the opposite problem for anybody reconciling it against their own records: the disallowed amount in box 1g is the broker's same-account, same-CUSIP answer, computed before you have told anyone about a second account. Two correct programs — one reading the 1099-B, one reading every fill from every account — will disagree about the same year, and the second is the one the rule describes.

Why it matters here

A trade journal reports trading performance: what a round trip made or lost, when it closed. That is the right number for reviewing trades and the wrong number for a tax return, because it treats every closed loss as a loss. Somebody who trades the same few tickers repeatedly — the reader these tools are built for — can close a year with a journal showing a net loss and a tax position showing much less of one, the difference parked in the basis of whatever they still hold. TradesViz is explicit that it does no tax reporting at all, wash sales included, and the category page says the same of journals generally.

The tool in this catalogue built around the rule is TradeLog, filed under portfolio trackers. It rebuilds the year from raw broker history rather than the 1099-B, adjusts wash sales across stocks, options and short sales, between separate accounts and against IRAs, and carries deferrals into the next year's file — which is the list of cases above that a broker's form does not cover. Its stated reason for refusing the 1099-B is the same one: the form already carries the broker's own adjustments without saying which basis figures they changed.

Sharesight is the counter-example worth reading before buying on a feature list. It has real tax reports for Australia, New Zealand and Canada, and for US investors a sold securities report on average cost with no wash-sale handling and no Form 8949. A tracker that "does tax" does it for the jurisdictions it names; see cost basis for the lot arithmetic this adjustment is applied to.

The question to put to any tool that shows a realised gain for a US account is short: which accounts does it see, and does the number include replacement purchases made in the 30 days before the sale.