Wash Sale Rule (IRC §1091)

A tax rule that disallows a capital loss if you buy "substantially identical" replacement securities within 30 days before or after the loss sale.

What it actually means

IRC §1091 disallows the deduction of a capital loss when the same taxpayer (or their spouse, or a controlled entity) acquires substantially identical securities within a 61-day window centered on the sale date (30 days before through 30 days after). The disallowed loss is added to the cost basis of the replacement shares — deferring the loss until the replacement shares are eventually sold without re-triggering the rule. Critically, the rule applies across all your accounts including spousal accounts and IRAs (per Rev. Rul. 2008-5).

Distinguishing it from look-alikes

The wash sale rule is widely misunderstood as applying only within a single brokerage. It does not — selling SPY at Schwab and buying SPY at Fidelity within 30 days triggers wash sale identically to buying back at Schwab. And selling for a loss in your taxable account followed by an IRA purchase (yours OR your spouse's) within 30 days makes the loss permanently disallowed (cannot add to IRA basis). HELM's Tax Brain detects cross-brokerage wash sales automatically.

Examples

Loss at Schwab → buyback at Fidelity within 30 days

Wash sale — loss disallowed, basis added to Fidelity shares

Loss in taxable → IRA purchase within 30 days

Worst case — loss is permanently lost, cannot add to IRA basis (Rev. Rul. 2008-5)

SPY → VOO swap

Gray area — different ETFs but tracking very similar indices; conservatively a wash sale, IRS hasn't litigated definitively