Wash Sale Rule
Tax rule that disallows loss deductions if you repurchase the same or substantially identical security within 30 days.
What You Need to Know
The wash sale rule (IRC § 1091) prevents you from claiming a tax loss if you repurchase the same (or substantially identical) security within 30 days before or after the sale.
How It Works: If you sell Stock XYZ at a loss and buy it back within 30 days, the IRS disallows the loss deduction. The disallowed loss is added to the cost basis of the repurchased shares.
Example:
- Sell 100 shares at $5,000 loss on Dec 15
- Rebuy 100 shares on Dec 20
- Loss is disallowed; $5,000 is added to new cost basis
61-Day Window: The rule covers 30 days before AND 30 days after the sale (61 total days).
Cryptocurrency Exception (For Now): 🚨 IMPORTANT: As of 2024, the wash sale rule does NOT apply to cryptocurrency. You can sell Bitcoin at a loss and immediately rebuy it for tax-loss harvesting.
However, pending legislation may change this. Tax Foundation and industry groups are tracking potential wash sale rule expansion to digital assets.
Strategies to Avoid (for stocks):
- Wait 31+ days to repurchase
- Buy a similar (not identical) security (e.g., sell VOO, buy VTI)
- Spouse can't buy the security either (applies to your household)
Penalty: None directly, but you lose the immediate tax deduction and must carry the basis adjustment forward.
Sources & References
This information is sourced from authoritative government and academic institutions:
- irs.gov
https://www.irs.gov/publications/p550#en_US_2022_publink100010601
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Capital Gains Tax Calculator
Calculate federal and state capital gains taxes on stocks, crypto, real estate. Compare short-term vs long-term rates and get tax optimization strategies
Crypto Tax Calculator
Calculate cryptocurrency taxes with FIFO/LIFO cost basis tracking - short-term vs long-term gains, mining income, Form 8949 prep
Related Terms in Tax Planning
Capital Gains
Profits realized from selling investments like stocks, bonds, or real estate for more than their cost basis.
Cost Basis (Crypto)
The original purchase price of cryptocurrency plus fees, used to calculate capital gains or losses.
FBAR (Foreign Bank Account Report)
FinCEN Form 114 requiring U.S. persons to report foreign financial accounts exceeding $10,000 aggregate value.
FIFO (First In, First Out)
Accounting method where the oldest assets are sold first—the IRS default for cryptocurrency.
Form 8949
IRS form used to report sales and dispositions of capital assets, including cryptocurrency.
HIFO (Highest In, First Out)
Tax optimization strategy where you sell the highest-cost assets first to minimize capital gains.