What is a wash sale?

Generally, a wash sale is what occurs when you sell stock or other securities at a loss and buy the same shares within 30 days before or after the sale date. Wash sale rules are designed to prevent investors from creating a deductible loss for the purpose of offsetting gains with only a short interruption in owning the security.

Specifically, the following situations count as a wash sale:

• 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 securities
  • Acquire substantially identical stock or securities in a fully taxable trade
  • Acquire a contract or option to buy substantially identical stock or securities
  • Acquire substantially identical stock for your Traditional or Roth IRA.

If you have a loss from a wash sale, you can’t deduct the loss on your return. Instead, the disallowed loss is added to the cost basis of the new stock or securities. However, a gain on a wash sale is taxable.

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 substantially identical stock within the 30 days before and after the date of the sale.

What if you don’t buy back the same number of shares? If you buy fewer shares of stock or securities than you sold, the number of shares you bought is subject to the wash-sale rules.

Why do wash sale rules exist?

The wash sale rules are designed to prevent people from selling investments and then buying the same stock back.

Some investors attempt to do this for the purpose of:

• Creating a deductible loss
• Using the loss to offset other shares sold for a gain
• Still keeping the stock or security in their investment portfolio

However, you can’t sell stock or mutual fund shares at a loss and then buy them again within 30 days just to claim the losses. If you do have a wash sale transaction, you’ll still need to report it.

What information do I need to report a wash sale?  

1. Details of the original sale at a loss

You’ll need:

• Date you sold the security
• Number of shares / units sold
• Sale proceeds
• Cost basis before any wash‑sale adjustment

This is the basic information needed to determine whether the original transaction produced a loss.

2. Dates and details of any repurchase (the “replacement shares”)

To determine whether the 30‑day rule applies, gather:

• Purchase date(s) of substantially identical stock, ETF, mutual fund shares, etc.
• Number of replacement shares purchased
• Whether the security is “substantially identical” (e.g., buying the same stock, equivalent ETF, shares acquired via option, etc.)

How to report wash sales on taxes

1. Gather the required information. Collect all the details the IRS requires for wash sale reporting:
   • Date you acquired the stock or security
   • Date you sold the stock or security
   • Number of stock or securities sold
   • Sale proceeds
   • Cost basis before any wash sale adjustment
   • Purchase dates and quantities of any “substantially identical” replacement shares
2. Confirm whether a wash sale occurred. A wash sale happens if you sold shares at a loss,  and bought substantially identical securities within 30 days before or after the sale.
3. Identify the amount of the disallowed loss. Check your Form 1099‑B box 1g or box 1i on Form 1099-DA, it may show the nondeductible wash‑sale loss. This is the amount that must be added to the basis of the replacement shares.
4. Adjust the basis of your replacement shares. Increase the cost basis of the replacement shares by the disallowed loss. This defers the loss until you sell the replacement shares in a non‑wash‑sale transaction.
5. Report the transaction on Form 8949 Part I or II (depending on how long you owned the stock or securities). Include the adjusted basis in column (e) and the wash‑sale loss in the “adjustments”  is reported as a positive number in column (g) and enter code “W” in column (f) on Form 8949.  You may attach an explanation of your basis with the form.
6. Transfer totals to Schedule D. After completing Form 8949, move your totals to Schedule D (Form 1040) for final gain/loss reporting.

What happens to my basis with a wash sale?

When a wash sale occurs, the IRS does not let you deduct the loss right away. Instead, the loss is deferred — and the way the IRS defers it is by adjusting the basis of the replacement shares. You’ll get the benefit of the loss when you eventually sell the new shares.

Your new basis equals the original basis of replacement shares plus the disallowed loss.

Keep in mind:

• Only the number of shares replaced gets a basis adjustment.
• if you acquire the substantially identical stock or securities in your IRA (traditional or Roth) the basis adjustment does not increase your basis in the IRA.

Wash sale example with a cost basis adjustment

If you sold shares and lost $500, but triggered a wash sale by buying substantially identical stock or securities within 30 days:

• You cannot claim a deduction for the $500 loss from your sale.
• If your replacement shares originally had a basis of $2,000, the adjusted basis becomes $2,500.
• When you later sell these new shares, that deferred loss will reduce your taxable gain or increase your deductible loss.

Wash sale FAQs

Does H&R Block support wash sale rules when filing taxes?

Yes, we’ve got your wash sale reporting covered. H&R Block supports wash sale rules in both its online tax software and through its tax professionals. The software guides users through entering wash sale information so you can calculate wash sales information and complete Form 8949 and Schedule D accurately.

If you prefer to work with an expert, our tax pros handle wash sale adjustments automatically as part of your tax prep, so you can account for your disallowed losses.

Does H&R Block automatically calculate wash sale losses?

Yes. When you enter a Form 1099‑B or 1099-DA, H&R Block automatically checks for wash‑sale losses—specifically the disallowed loss reported in column 1g—and applies the required wash‑sale rules.

Are wash sales reported differently if I file with a tax pro?

The tax rules are the same, but the process differs. If you file with a tax professional, they take care of all wash sale reporting, including reviewing your 1099‑B or 1099-DA for wash‑sale information.