Wash sale
Also: wash sale, wash-sale rule, section 1091
A sale at a loss followed by the purchase of substantially identical stock within 30 days before or after. The loss is disallowed and added to the basis of the replacement shares.
Under IRC Section 1091, a loss on the sale of stock or securities is disallowed if substantially identical stock is purchased within 30 days before or after the sale. The disallowed loss is added to the basis of the replacement shares and the holding period of the replacement picks up the original holding period. The wash-sale window spans 61 days total. It applies across all accounts owned by the taxpayer and spouse, including IRAs, where the disallowed loss is permanently lost.
Example: an engineer sells 400 shares of employer stock at a $12,000 loss on December 15. Her RSU vest on January 5 delivers 300 shares. The wash-sale rule disallows $9,000 of the loss (300 of 400 shares replaced). The $9,000 adds to the basis of the 300 vested shares. Only $3,000 of the loss is currently deductible.
Common mistake: forgetting that RSU vests, ESPP purchases, and dividend reinvestments all count as acquisitions triggering wash-sale treatment.
Wash-sale rules matter at year-end tax-loss harvesting, at sales around vesting dates, and at ESPP purchase dates falling within 30 days of a loss sale.