What Is a Wash Sale? A Tax Recordkeeping Starting Point

A sale at a loss does not automatically create an immediately deductible tax loss. The wash-sale rule can apply when substantially identical securities are acquired close to the sale. It is a reason to review the surrounding transactions, not only the sale confirmation.

What timing does the rule examine?

IRS training materials describe a wash sale as selling securities at a loss and acquiring substantially identical securities within thirty days before or after the sale. Looking only at purchases after the sale misses part of that window.

The phrase substantially identical also matters. This is not a rule to apply using only the idea that two investments feel similar. When the classification is unclear, ask a qualified tax professional rather than treating a different ticker as a complete answer.

What happens to the loss?

The IRS example uses shares bought for one thousand dollars, sold for seven hundred fifty dollars and repurchased for eight hundred dollars within the relevant period. The two-hundred-fifty-dollar loss is not deductible on that sale.

In that example, the disallowed loss is added to the replacement shares' cost, giving a basis of one thousand fifty dollars. Those numbers illustrate the rule; they are not an estimate of your own tax outcome. Special situations can produce different treatment.

Which records should you gather?

Keep the sale date, purchase dates, quantities, security identifiers, amounts and basis records. Review the brokerage's Form 1099-B and any wash-sale information on the account statement. Have your tax preparer reconcile the records rather than assuming a trade-history screen supplies the entire answer.

Before deliberately selling to realize a tax loss, check planned purchases as well as recent ones. Ask your preparer how the rule applies to your particular accounts and transactions. Investment and tax decisions should be considered together; a tax goal does not remove the risk of losing money in an investment.

Frequently asked questions

Does the rule only look after the sale? No. The IRS describes a window extending thirty days before and after it.

Is the disallowed loss simply ignored in every case? No. In the IRS's ordinary replacement-share example, it increases the replacement shares' basis. Ask about your specific circumstances.

Sources and further reading: IRS, Case Study: Wash Sales (https://apps.irs.gov/app/vita/content/10s/10_04_011.jsp?level=advanced).