Wash Sale Rule
The wash sale rule is a US tax provision that disallows a tax loss when a taxpayer sells a security at a loss and then buys "substantially identical" securities within 30 days before or after the sale.
The 61-day window
The rule applies to the 30 days before the sale, the day of, AND the 30 days after — a total 61-day window. If you sell AAPL at a loss on March 15 and buy AAPL (or a substantially identical security) any time between February 13 and April 14, the loss is disallowed for tax purposes.
The disallowed loss isn't gone forever — it's added to the cost basis of the replacement shares, so it shows up later when you eventually sell those.
What counts as "substantially identical"
The IRS hasn't published a comprehensive list. Common understandings:
- Buying back the same security: clearly substantially identical
- Options on the same security: generally considered substantially identical to the underlying
- A different share class of the same company (e.g. GOOG vs GOOGL): generally not substantially identical
- An ETF that holds the security as one of many constituents: generally not substantially identical
- Two competing companies (e.g. Coke vs Pepsi): not substantially identical
Practical implications
Active traders, particularly day-traders who scale in and out of names, must track wash sales carefully — they can easily accumulate large disallowed losses that complicate tax filings. Most US brokerages now track wash sales automatically and report them on the year-end 1099-B.
The rule does NOT apply to:
- Sales at a profit (only losses)
- Sales in retirement accounts (IRAs, 401(k)s)
- Securities held in C-corp accounts
This is informational. Top Tier Newswire is not a tax advisor; consult a CPA for specifics.