What is the Wash Sale Rule? (Don’t Accidentally Lose Deductions)

Tax Loss Harvesting is a brilliant strategy: you sell a losing stock to lower your tax bill. But if you buy that same stock back immediately because you have “FOMO” (Fear Of Missing Out), the IRS will disqualify your tax deduction. This is the Wash Sale Rule. It triggers if you buy a “substantially identical” security within 30 days before or after the sale. Here is how to calculate the 61-day window and avoid accidentally erasing your tax benefits.

BMT Investing Team BMT Investing Team · 📅 Feb 2026 · ⏱️ 5 min read · INVESTING › TAXES
Window
61 Days
30 Before + Sale + 30 AfterTime
Result
Deferred
Loss Added to New BasisFact
Risk
IRA
Permanent Loss in IRAWarn

1. The Rule: “Substantially Identical”

The IRS prevents you from gaming the system while keeping your position.

What Counts?
Identical: Selling TSLA stock and buying TSLA stock. (Wash Sale).
Substantially Identical: Selling TSLA stock and buying a TSLA Call Option. (Wash Sale).
Different: Selling TSLA and buying Ford (F). (Safe).
Gray Area: Selling an S&P 500 ETF (SPY) and buying a different S&P 500 ETF (VOO). Most CPAs advise against this, but selling SPY and buying a Total Market ETF (VTI) is generally safe.

2. The Math of a Wash Sale (Checklist)

Your loss isn’t gone; it’s just moved. Here is the accounting.

Action Price Result
1. Buy 1 share @ $100 Basis: $100
2. Sell 1 share @ $80 Loss: $20 (Harvested?)
3. Re-Buy
(Within 30 Days)
1 share @ $85 Wash Sale Triggered!
Final Status New Basis is $105 ($85 Price + $20 Disallowed Loss)

3. Timeline: The 61-Day Danger Zone

The window looks both backward and forward. You cannot buy the stock before you sell it either.

Period Status Impact
Day -30 to -1
(Prior Purchase)
Restricted
Cannot buy extra shares here
Day 0
(The Sale)
Event
Sell for Loss
Day +1 to +30
(Wait Period)
Restricted
Cannot Re-Buy
Day +31 Safe
Free to Buy again
Planning Note
If you accidentally trigger a wash sale, don’t panic. You haven’t lost the money; you’ve just delayed the tax break. When you eventually sell the new shares (and wait 30 days), you can finally claim the accumulated loss.

4. Strategy: The “Double Up” Trick

How to stay invested without triggering the rule.

  • Scenario: You own Tesla at $200. It drops to $150. You want the tax loss, but you think it will bounce back tomorrow. You can’t wait 30 days.
  • The Move: Buy more Tesla at $150 immediately. Wait 31 days. Then sell the original $200 lot.
  • The Result: You capture the rebound with the new shares. You harvest the loss on the old shares after the window clears. (Risk: You are holding double the position for 30 days).

5. Warning: The IRA Death Trap

Never mix taxable and non-taxable accounts.

⛔ Permanent Destruction

If you sell a stock for a loss in your Taxable Brokerage account and buy it back in your IRA or 401(k) within 30 days:

  • The Rule: It is a Wash Sale.
  • The Penalty: Normally, the loss is added to the new basis. But IRAs have no cost basis. Therefore, the loss evaporates completely. You lose the money AND the tax deduction forever.

6. Frequently Asked Questions

Does it apply to Crypto?
Depends on the year. As of early 2026, regulations are tightening to apply wash sale rules to digital assets. Historically, crypto was exempt, but you must check the current IRS guidance for the 2026 tax year before harvesting crypto losses.
What about ETFs?
Yes. You can sell a Biotech ETF (IBB) and buy a different Biotech ETF (XBI) immediately. Since they track different indexes and hold different weights, they are generally NOT considered “substantially identical.”