A wash sale occurs when both of these apply:
- You sell or trade stock, mutual fund shares, or bonds at a loss.
- Within 30 days before or after the sale date, you:
- Buy substantially identical stock or shares
- Gain substantially identical stock or securities in a fully taxable trade
- Obtain a contract or option to buy substantially identical stock or securities
- Get substantially identical stock for a traditional or Roth IRA
If you have a loss from a wash sale, you can’t deduct it on your return. However, a gain on a wash sale is taxable.
The wash-sale rules are designed to prevent people from selling investments and then buying the same stock back. Investors do this for the sole purpose of:
- Creating a deductible loss
- Using the loss to offset other shares sold for a gain
You can’t sell a stock or mutual fund at a loss and then buy it again it within 30 days just to claim the losses.
You’ll need to figure the basis for shares sold in a wash sale. When you do, add the amount of disallowed loss to the basis of the shares that caused the wash sale. These are the new shares you got. By doing this, you defer the loss, but it’s not totally disallowed.
You also have a wash sale if both of these apply:
- You sell stock at a loss.
- Your spouse — or a corporation you control — buys the same stock within the 30 days before and after the date of the sale.
Also, you might have bought fewer shares of stock or securities than you sold. If so, only the number of shares you bought is subject to the wash-sale rules.
Report wash sales on Form 8949. Or, in the H&R Block online program, go to Sale of Stocks. For the disposition type, choose Wash Sale. The program will calculate it for you.
For shares you sold that aren’t subject to the wash sale rules, report the sale as an ordinary transaction.
To learn more about identical stocks and securities, see Publication 550: Investment Income and Expenses at www.irs.gov.
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