Wash Sale
Selling a security at a loss and buying it (or something “substantially identical”) back within 30 days before or after the sale — which disallows the loss.
Under IRS §1091, if you sell a holding at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed and rolled into the basis of the replacement shares. The trap that catches wealthy households is that the rule spans every account you own — a sale at one broker and a buy at another, or even in a spouse's IRA, can trigger it. Most consumer apps only watch a single account, so they miss it.
What actually triggers it
A wash sale happens when you sell a security at a loss and buy the same — or a “substantially identical” — security within 30 days before or after the sale. That's a 61-day window centered on the sale date. The loss isn't gone forever: it's disallowed for the current year and added to the cost basis of the replacement shares, and the old holding period tacks on. So the benefit is deferred until you sell the replacement — unless the replacement lands somewhere the basis adjustment can't follow.
Why it's a trap for multi-account households
The rule is applied per taxpayer, not per account, so it reaches across every brokerage you hold and into IRAs and a spouse's accounts. Under Rev. Rul. 2008-5, a repurchase inside your IRA disallows a loss taken in a taxable account — and because an IRA has no usable cost basis, that disallowed loss is lost permanently rather than merely deferred. Automatic dividend reinvestment, a recurring contribution, or an ESPP purchase can all spring it without you lifting a finger.
How to stay clear
Either wait 31 days before repurchasing, or buy a replacement that isn't substantially identical — a fund tracking a different index from a different issuer is the conventional move (the IRS has never defined “substantially identical” for funds, so this is judgment, not a bright line). The hard part isn't the rule; it's seeing every account at once so you catch the buy you forgot about at the other broker.
A worked example
You sell 100 shares of an S&P 500 ETF on March 1 to harvest a $5,000 loss. On March 20, your IRA's automatic monthly contribution buys the same ETF. The $5,000 loss is disallowed — and because the repurchase was in an IRA, the basis adjustment has nowhere to go, so the deduction is lost entirely, not deferred.
Frequently asked
Does the wash-sale rule apply across different brokerages?
Yes. It applies to you as a taxpayer, not to a single account, so a sale at one broker and a repurchase at another within the 61-day window still triggers it.
Can my spouse's purchase trigger my wash sale?
It can. Purchases by your spouse, or by a corporation or IRA you control, are attributed to you for wash-sale purposes.
Is buying a different S&P 500 fund a wash sale?
“Substantially identical” isn't defined for funds. Two funds tracking different indices are conventionally treated as not substantially identical, but two near-clones of the same index are riskier — this is a judgment call worth running past your CPA.
In Formation
Cross-custodian wash-sale detection
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