The wash sale rule can erase a tax loss without warning. Sell a stock at a loss, then buy it back within 30 days, and the IRS will disallow that loss on your current tax return. The loss is not lost forever, but it does not save you anything in the year you sold.
This guide breaks down how the rule works, what counts as a wash sale, and how brokers like Robinhood track these events. It is general info, not tax advice. Talk to a tax professional for your specific situation.
The Wash Sale Rule in Plain Words
Under Internal Revenue Code Section 1091, you cannot claim a loss on the sale of a security if you buy a substantially identical security within 30 days before or after the sale.
That 30-day window goes both directions. So the danger zone is 61 days total: 30 days before the loss sale, the day of the sale, and 30 days after.
The rule is laid out in detail in IRS Publication 550, which covers investment income and expenses. As of 2026, the basic structure has not changed.
Why the Rule Exists
Without this rule, investors could sell a position on December 30 to lock in a loss, then buy the same stock back on December 31 and still own it. The loss would lower their tax bill, even though their portfolio looked the same as before.
The IRS treats this as not a real loss and uses the wash sale rule to block the deduction.
What Counts as Substantially Identical
This is the trickiest part of the rule. The IRS gives general guidance, not a clean list.
Clearly the Same
The same stock or the same ETF is the obvious case. Selling Apple shares at a loss and buying Apple shares back within 30 days is a wash sale.
Likely the Same
Buying a call option on the same stock during the window can trigger the rule. So can buying a convertible bond that turns into the same stock.
Probably Not the Same
Two different S&P 500 ETFs, like VOO and SPLG, are often treated as not substantially identical, even though they track the same index. Still, the IRS has not given clear yes-or-no rules, so a conservative approach is to avoid pairs like this if you are trying to harvest a loss. A tax professional can help in close cases.
Robinhood
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What Happens to the Disallowed Loss
A wash sale loss does not disappear. The disallowed amount gets added to the cost basis of the replacement shares. When you later sell those replacement shares, the higher basis means you owe less tax, or you can claim a larger loss.
So the rule is more about timing than about losing the deduction forever. It can still hurt if you wanted the loss this year for a specific tax reason.
Wash Sale Examples
Example 1: Classic Wash Sale
You buy 100 shares of stock at 50 dollars each. The price drops to 30 dollars. You sell on November 10 for a 2,000 dollar loss. On November 25, you rebuy 100 shares at 31 dollars. The 2,000 dollar loss is disallowed. The cost basis of the new shares is 31 dollars plus 20 dollars per share added from the wash sale, for a basis of 51 dollars per share.
Example 2: Avoiding the Wash Sale
Same setup, but you wait until December 15 to rebuy. That is more than 30 days after the loss sale. The full 2,000 dollar loss is allowed in the current year. The new shares get a clean cost basis at the purchase price.
Example 3: Spouse or IRA Account
Selling at a loss in your taxable account and rebuying inside your IRA can also trigger the rule. The IRS treats a buy in your IRA as a related purchase, and the disallowed loss is permanent in this case. The same applies if your spouse rebuys the security in their account.
How Robinhood and Other Brokers Track It
US brokers track wash sales within the same account for the same security. They report the totals on your year-end 1099-B form. If you trade the same security in two different brokerage accounts, neither broker may catch the wash sale across accounts, and you are still responsible for tracking it.
If you actively trade, especially the same names across Robinhood and another broker, keep your own log or use tax software that pulls from each account.
Tips to Avoid an Unwanted Wash Sale
Wait Out the 30 Days
The simplest move is to wait at least 31 days before buying the same security back. Setting a calendar reminder helps.
Buy a Different Holding
If you want to stay in the market, you can buy a similar but not identical fund. For example, you might sell one US large-cap value ETF and buy a total US stock market ETF instead. Be careful with very close pairs like two S&P 500 ETFs, since the IRS has not drawn a clear line.
Mind the Calendar Around Year End
Many investors realize losses in November or December to lower their tax bill. Buying back too early can ruin the plan. Plan trades with the 30-day window in mind.
What the Rule Does Not Apply To
The wash sale rule generally applies to stocks, ETFs, options, and similar securities. As of 2026, the IRS has not formally applied the rule to direct purchases of cryptocurrency, although that could change. Any new tax law could shift this. A tax professional can update you on the current state.
How to Stay Out of Trouble
A short checklist can keep you safe.
- Track the date of every loss sale.
- Avoid buying the same security 30 days before and after the sale.
- Watch IRA, Roth IRA, and spouse accounts as part of the same picture.
- Read your 1099-B carefully and reconcile it with your records.
- Bring questions to a tax professional, especially in close calls.
Frequently Asked Questions
Does the wash sale rule reset every year?
The rule is tied to the 30-day window around the sale, not the calendar year. A sale in late December and a buy in early January can still create a wash sale because they sit inside the same 30-day window.
Can I use a different ETF to dodge the rule?
Maybe. Two ETFs tracking the same index could be flagged by a cautious tax preparer. Many investors and advisors treat clearly different funds, like a value ETF versus a broad market ETF, as not substantially identical. The IRS has not given a final rule, so a tax professional can help with close calls.
Does the wash sale rule apply inside an IRA?
Losses inside an IRA usually do not give you a tax deduction in the first place. The bigger issue is selling at a loss in a taxable account and rebuying inside your IRA within 30 days. That triggers the rule and permanently removes the loss benefit.
Does Robinhood report wash sales automatically?
Robinhood and other US brokers track wash sales for the same security in the same account and include them on your 1099-B. They may not catch wash sales that cross multiple brokers or accounts. Keep your own records if you trade actively across platforms.
