Wash Sale Rule
An IRS rule that blocks you from claiming a tax loss if you buy back the same (or a very similar) investment within 30 days before or after selling it.
The wash sale rule is the IRS's way of stopping a simple loophole: selling an investment at a loss for the tax deduction, then immediately buying it back as if nothing happened. If you repurchase the same or a "substantially identical" security within 30 days before or after the sale—a 61-day window total—the loss gets disallowed.
The good news is that a disallowed loss isn't gone forever. It gets added to the cost basis of your replacement shares, so you'll eventually get the benefit when you sell those shares later (assuming you don't trigger another wash sale).
Wash sales apply to stocks, bonds, mutual funds, ETFs, and options—and they apply across all your accounts, including IRAs. One notable exception as of 2025: the rule hasn't historically applied to crypto, since the IRS classifies it as property rather than a security. That said, new legislation could change this.
For active traders, tracking wash sales by hand is a nightmare. Each lot needs to be checked against purchases across every account within that 61-day window. This is where automated tracking tools earn their keep—they can flag wash sales in real time and adjust your basis automatically.
Some common traps to watch for: buying in your IRA within the wash sale window (yes, that counts), dividend reinvestments that accidentally trigger a wash sale, and forgetting that options on the same stock can trigger the rule too.
Frequently Asked Questions
▸Does the wash sale rule apply to crypto?
As of 2025, it doesn't—crypto is classified as property, not a security, so the wash sale rule doesn't technically apply. However, there's proposed legislation that could extend the rule to digital assets in the future.
▸What happens to a disallowed wash sale loss?
It gets added to the cost basis of your replacement shares. So when you eventually sell those shares, the higher basis means a smaller gain (or bigger loss). The tax benefit is deferred, not eliminated.
▸Can a wash sale occur across different accounts?
Yes—the IRS applies this rule across all your accounts, including taxable brokerages, IRAs, and even your spouse's accounts. Buying a substantially identical security in any of them within the 61-day window triggers it.
Clarity tracks this automatically across your connected accounts. Start Free Trial · Demo