What is a wash sale?

A wash sale is when you sell a stock or security at a loss and, within 30 days before or after that sale, you buy substantially identical stock or securities. When that happens, the IRS disallows the loss for the current year. The loss is not gone. It moves into the cost basis of the replacement shares, so you get the deduction later, when you finally sell those replacement shares in a non-wash transaction. The rule comes from Internal Revenue Code Section 1091 and is spelled out in IRS Publication 550. Its purpose is to stop a taxpayer from claiming a tax loss while keeping essentially the same investment position.

How long is the wash sale window?

The window is 61 days total: the 30 days before the sale, the day of the sale, and the 30 days after. Most people picture only the 30 days after a loss sale, but the rule looks backward too. If you bought replacement shares three weeks before you sold the original lot at a loss, that earlier purchase can still trigger a wash sale. The trigger is the purchase of substantially identical securities anywhere inside that 61-day span, not just after the loss.

What counts as "substantially identical"?

Substantially identical generally means the same security: the same company's common stock, or the same fund. Buying back the exact shares you sold is the clear case. Preferred stock or bonds of the same company are usually not substantially identical to its common stock unless they are convertible and priced to track it closely. Two different S&P 500 index funds from different providers are a gray area the IRS has never fully defined, so many preparers treat funds that track the same index as a risk rather than a safe swap. The safest read is that "substantially identical" covers the same ticker and any instrument that is economically a stand-in for it.

Does a wash sale erase the loss permanently?

No. A disallowed wash sale loss is deferred, not forfeited. You add the disallowed loss to the cost basis of the replacement shares. That higher basis means a smaller gain (or a larger loss) when you eventually sell those replacement shares, which returns the deduction to you at that point. The holding period of the shares you sold also carries over to the replacement shares, which can matter for whether the eventual gain is long-term or short-term. So the wash sale rule delays the tax benefit and preserves it. It does not cancel it, as long as the replacement shares are eventually sold outside a wash window.

Can a purchase in your IRA trigger a wash sale?

Yes, and this is the version that catches people. If you sell a security at a loss in a taxable account and buy the substantially identical security in your traditional IRA or Roth IRA within the 30-day window, the loss is disallowed. The trap is that the basis of the shares bought inside the IRA does not get increased by the disallowed loss the way a taxable replacement purchase would. That means the loss is not just deferred, it is lost for good. Automatic dividend reinvestment and recurring contributions across a taxpayer's linked accounts are the usual way this happens without anyone deciding to do it.

How does a preparer catch wash sales at scale?

Broker 1099-B forms report wash sale disallowances, but only within a single account at a single broker. They do not catch a loss sold at one brokerage and repurchased at another, or a repurchase inside an IRA, because no single custodian sees both sides. A preparer running a client with multiple accounts has to reconcile positions across every 1099-B and every IRA statement, not trust the box on one form. This is exactly the kind of cross-document check that gets missed in a manual year-end scramble and surfaces cleanly when intake pulls every brokerage and retirement statement into one review. Firms that standardize a securities reconciliation step catch cross-account wash sales before the return goes out, not in an amended return afterward. See how SignalsHQ structures multi-document tax prep for where a check like this fits in the workflow.