Wash Sale Rule: Simple Guide to Protect Your Tax Losses

Ever sold a stock at a loss and then bought it back a few days later? If you have, the IRS might say that loss doesn’t count for tax purposes. That’s the wash sale rule in action, and it can bite investors who aren’t careful.

What Exactly Is a Wash Sale?

A wash sale happens when you sell a security for a loss and, within 30 days before or after that sale, you buy the same security or a “substantially identical” one. The 30‑day window includes the day of the sale, so you have a total of 61 days to watch out for. When the rule applies, the loss is disallowed for that tax year. Instead, the loss gets added to the cost basis of the new shares, pushing the deduction to a future sale.

Why does the IRS do this? The idea is to stop people from creating artificial losses just to lower their tax bill while still staying in the same position economically. In practice, it means you can’t just sell low, claim a loss, and immediately jump back in.

How to Avoid the Wash Sale Rule

Here are a few easy tricks:

• Wait it out. The simplest method is to hold off on repurchasing the same stock for more than 30 days after the loss sale.
• Switch to a similar, but not identical, security. If you sold a tech ETF at a loss, consider buying a different tech ETF that tracks a broader index. It’s not “substantially identical,” so the rule won’t apply.
• Use tax‑loss harvesting software. Many broker platforms flag potential wash sales automatically, saving you from accidental triggers.
• Buy through a different account. The rule looks at all your accounts, including IRAs and spouses’ accounts, so moving the purchase to another brokerage won’t help.

Remember, the loss isn’t gone forever. The disallowed amount rolls into the basis of the new shares, so when you finally sell them, you’ll get the deduction then. Just keep track of it so you don’t miss out later.

For active traders, the wash sale rule can feel like a nuisance, but it’s manageable. Keep a spreadsheet of loss sales, note the dates, and set reminders before you buy the same ticker again. Many investors set a personal rule to wait 45 days just to be safe.

Finally, if you think you’ve triggered a wash sale, check your 1099‑B form. Your broker should list the disallowed loss and the adjusted basis. If it looks off, contact them for clarification before filing your return.

Understanding the wash sale rule helps you keep more of your hard‑earned money. By timing your trades wisely and using the right tools, you can still harvest losses without getting tripped up.