Investors who sell a losing stock and buy it back within 30 days lose the right to deduct that loss on their federal tax return. The rule, codified in 26 U.S. Code Section 1091, covers a full 61-day window stretching 30 days before through 30 days after the sale, and it applies whether the repurchase happens in a regular brokerage account or inside an IRA. With retail trading activity still elevated heading into the 2026 filing season, the penalty catches many taxpayers off guard only after their broker reports a disallowed loss on Form 1099-B.
How the 61-day wash-sale window traps repeat buyers
The statute is blunt. Under the wash-sale language in Section 1091(a), “no deduction shall be allowed” for a loss when the taxpayer acquires substantially identical stock or securities inside the 61-day window. That window is wider than many people assume: it starts 30 days before the loss sale and runs through 30 days after it, meaning a purchase that precedes the sale can also trigger the rule. Someone who averages down into a falling stock and then capitulates near the bottom can discover that the earlier buy has wiped out the tax value of the later loss.
The Treasury regulation that implements the statute, found in 26 CFR Section 1.1091-1, extends the trigger beyond outright stock purchases to include contracts and options to acquire substantially identical securities. Writing a put, buying a call, or entering into certain forward contracts on the same stock during the window can produce the same disallowance as a direct share purchase. The rule also looks across all of a taxpayer’s accounts, so activity in a spouse’s account or a controlled entity can complicate the analysis.
In a standard taxable brokerage account, the disallowed loss is not gone forever. Instead, it gets added to the cost basis of the replacement shares and the holding period of the old shares tacks onto the new position. That defers the tax benefit until those replacement shares are eventually sold at a taxable gain or loss. The deferral can stretch for years if the investor continues to roll the position or never fully exits, dulling the near-term value of tax-loss harvesting strategies that are meant to offset current-year gains.
There is one scenario where the loss does effectively vanish. The IRS has held that when a taxpayer sells stock at a loss in a taxable account and repurchases substantially identical shares inside an IRA within the wash-sale window, the loss is disallowed and no basis adjustment applies to the retirement account. Because IRA contributions and earnings are governed by their own basis rules, the disallowed loss simply disappears from the tax system. Investors who move between taxable and retirement accounts during volatile stretches therefore face the harshest version of the wash-sale rule and can unintentionally forfeit deductions they expected to use.
Broker reporting and the 1099-B box that flags you
Brokers are required to track and report wash-sale disallowances on covered securities. The IRS instructions for Form 1099-B designate box 1g specifically as “Wash sale loss disallowed,” and that figure flows directly onto a taxpayer’s Schedule D and Form 8949 through tax-preparation software. Any mismatch between what the broker reports and what the taxpayer claims can generate an automated notice from the IRS, even when the taxpayer believes they have a reasonable interpretation of the rules.
The practical problem is that broker tracking typically covers only transactions within a single account at a single firm. An investor who sells shares at a loss through one brokerage and repurchases identical shares through another, or inside a retirement account at a different institution, may create a wash sale that is invisible to both brokers’ internal systems. In that case, no disallowed amount appears in box 1g, but the legal obligation to apply the wash-sale rule still exists. The taxpayer is technically required to adjust basis and report the correct disallowed loss manually, even though the information return does not flag it.
That gap in reporting can cut both ways. On one hand, some investors inadvertently underreport disallowed losses, overstating their deductions and inviting potential IRS correspondence. On the other, taxpayers who rely solely on broker-provided numbers may miss opportunities to restore legitimate loss deductions when they can demonstrate that positions are not substantially identical or that the timing falls outside the 61-day window. Careful recordkeeping across all accounts, including IRAs and options activity, is essential to reconcile broker reports with what the law actually requires.
For active traders, the combination of a broad statutory definition, expansive regulatory guidance, and imperfect third-party reporting makes the wash-sale rule a recurring trap. Planning trades with the 61-day window in mind, avoiding rapid round-trips between taxable and retirement accounts, and reviewing 1099-B entries before filing can reduce the risk that a surprise disallowance will erode the expected tax benefit of realizing investment losses.
