Wash Sale Rule

What is the Wash Sale Rule?

The wash sale rule (IRS Section 1091) prevents you from claiming a tax deduction on a loss if you buy a "substantially identical" security within 30 days before or after the sale.

Example

You sell AAPL at a $500 loss on March 15. If you buy AAPL again anytime between February 13 and April 14 (30 days before or after), the $500 loss is disallowed for tax purposes. The disallowed loss gets added to the cost basis of the new shares.

Impact on day traders

• Trading the same stock daily: wash sales pile up fast
• Year-end trap: December losses followed by January buys trigger wash sales across tax years
• Use tax software: TradeLog or similar tools track wash sales automatically