Wash Sale Rule Explained: The 30-Day Window
Under the IRS wash sale rule, a loss on a security is disallowed if you buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window. The disallowed loss is added to the cost basis of the replacement shares.
How the 61-day window works
The window runs 30 days before the sale, the sale date, and 30 days after it. A purchase anywhere inside that window triggers the rule. The same rule applies if you buy a call option or contract on the same security.
What happens to the disallowed loss
The loss is not gone: it is added to the cost basis of the replacement shares, and the holding period of the old shares carries over to the new ones. That defers the tax benefit rather than eliminating it.
Example
You sell 100 shares at a $500 loss on June 1 and buy 100 shares of the same stock on June 20. The $500 loss is disallowed for the current return and added to the cost basis of the June 20 shares.
Frequently asked questions
What is Wash Sale Rule?
Under the IRS wash sale rule, a loss on a security is disallowed if you buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window. The disallowed loss is added to the cost basis of the replacement shares.
How does Wash Sale Rule show up on the exam?
A purchase 30 days before the sale counts too. If a question gives a repurchase at day 31, the loss is allowed.
Practice this concept
Sources
- Internal Revenue Code Section 1091
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