Wash Sales: The 30-Day Rule and “Substantially Identical” Investments

The direct answer

A wash sale can prevent you from deducting an investment loss currently when you sell stock or securities at a loss and acquire substantially identical stock or securities within the statutory window.

The window is wider than “30 days after the sale.” It includes 30 days before the sale, the sale date, and 30 days after it—a 61-calendar-day period.

For an ordinary taxable-account replacement governed by IRC §1091, the disallowed loss generally is added to the replacement property's basis and the prior holding period generally carries into the replacement position.

But not every transaction involving a spouse, IRA, or related entity follows that ordinary mechanism. Those situations need to be separated rather than compressed into one “wash-sale rule.”

The ordinary §1091 wash sale

Start with the cleanest case.

You own investment stock with an adjusted basis of $10,000.

You sell it for $8,000, producing a $2,000 loss.

Ten days later, you personally buy 100 substantially identical shares in a taxable account for $8,500.

Assuming §1091 applies, the $2,000 loss is disallowed currently.

But in this ordinary taxable replacement:

Replacement purchase price: $8,500
Disallowed loss added to basis: $2,000
Replacement adjusted basis: $10,500

The prior holding period generally carries into the replacement shares under IRC §1223(3).

The loss has not simply vanished. Its tax effect has generally been deferred into the replacement position.

You must look backward as well as forward

The phrase “30-day rule” can be misleading because investors often look only at purchases after the loss sale.

Section 1091 also looks backward.

A substantially identical purchase before the loss sale can matter if it falls within the statutory window.

That means an automatic dividend reinvestment, employee plan purchase, recurring investment, option transaction, or purchase in another account can be relevant even if you carefully avoid manually buying the stock after the sale.

There is no election to opt out of §1091 when its requirements are satisfied.

Partial replacement can mean partial disallowance

Wash-sale analysis is also quantity-sensitive.

Selling 500 shares at a loss and replacing only part of the position does not necessarily produce the same result as replacing all 500.

The number of sold and replacement shares and the lot-matching rules can determine how much of the loss is affected.

This is one reason accurate lot records matter.

See Specific Identification vs. FIFO where multiple acquisition lots are involved.

“Substantially identical” is not the same as “same ticker”

The statute uses substantially identical, not “the exact same security.”

That makes the analysis broader—and less mechanical—than checking whether the ticker symbol changed.

At the same time, there is no universal regulatory formula that declares every pair of ETFs safe or unsafe.

Closely related index products, different share classes, convertible instruments, options, derivatives, and reorganized securities can require facts-and-circumstances analysis.

A different ticker is not an automatic safe harbor.

Neither is the existence of some economic difference proof that two investments can never be substantially identical.

The rule cannot be reduced to a universal public list of “wash-sale-safe ETFs.” Whether investments are substantially identical remains a facts-and-circumstances question.

An IRA or Roth IRA replacement can produce a harsher result

Now change the facts.

You sell stock at a loss in your taxable brokerage account and, within the statutory window, cause your IRA or Roth IRA to acquire substantially identical stock.

Revenue Ruling 2008-5 applies §1091 to the ruling's facts.

The loss is disallowed.

But the ordinary taxable-account basis mechanism does not rescue the loss by increasing the IRA or Roth IRA's basis under §1091(d).

That is a materially different result from buying replacement shares in an ordinary taxable account.

This is why reviewing only the taxable brokerage account can miss an important replacement transaction.

A spouse purchase is not automatically your wash sale

Spouse activity requires more precision.

An independent purchase by a spouse near the time of your loss sale is not automatically a §1091 wash sale or a §267 transaction merely because the dates fall within 30 days.

The facts matter.

The analysis changes if the transaction is coordinated or structured in a way that brings related-party principles into play.

In McWilliams v. Commissioner, the Supreme Court addressed coordinated intra-family transactions executed through the market. That doctrine should not be transformed into a universal rule that every spouse purchase within a 30-day period disallows the taxpayer's loss.

The relevant question is therefore not merely:

“Did my spouse buy something within 30 days?”

It is also:

“What transaction actually occurred, and was the purchase independent or part of a coordinated related-party disposition?”

Direct related-party sales follow a different regime

IRC §267 contains separate rules disallowing losses on qualifying sales or exchanges between related persons.

That is not the same mechanism as an ordinary §1091 wash sale.

Where §267 applies, the seller's loss is disallowed, but the disallowed amount does not simply get added to the purchaser's basis under §1091(d).

Instead, §267(d) provides a separate downstream rule.

If the original related-party transferee later disposes of the property at a gain, the prior disallowed loss can reduce recognized gain to the extent provided by §267(d).

If the later disposition instead produces a loss, §267(d) cannot be used to enlarge that later loss.

So it is inaccurate to summarize every §267 loss as “permanently destroyed.” It is equally inaccurate to treat it like a normal wash-sale basis adjustment.

Direct transfers between spouses also require attention to IRC §1041, which can override the ordinary gain-or-loss framework for qualifying spousal transfers.

Controlled entities require the same discipline

A direct qualifying loss sale to a controlled entity can implicate §267 when the statutory relationship and ownership requirements are satisfied.

But an entity's independent market purchase should not automatically be converted into a §267 transaction merely because it occurs inside §1091's 30-day timing window.

Indirect-sale principles can matter when transactions are coordinated.

Again, the transaction form and facts control.

The correct framework distinguishes:

your own replacement purchase
→ §1091

your IRA/Roth replacement on Rev. Rul. 2008-5 facts
→ §1091, but without the ordinary replacement-basis benefit

qualifying direct related-party loss sale
→ §267 or another applicable related-party regime

coordinated indirect related-party market transactions
→ analyze §267 and *McWilliams*

independent spouse or entity market activity
→ no automatic result from temporal proximity alone.

Broker-reported wash sales are narrower than substantive wash-sale law

A Form 1099-B may report a wash-sale adjustment.

That is useful information.

But “broker-reported wash sale” and “wash-sale loss disallowance under §1091” are not synonymous.

Mandatory broker reporting generally covers a narrower set of transactions than the taxpayer's substantive tax obligation.

A broker may not know about:

• another brokerage account;
• an IRA or Roth IRA;
• certain spouse or related-party activity;
• an employee plan;
• or other outside transactions.

So the absence of an amount in Form 1099-B box 1g does not establish that no wash-sale issue exists.

Wash-sale rules do not apply to recognized gains

Section 1091 is a loss-disallowance rule.

If you sell appreciated stock and recognize a gain, buying it back does not turn the recognized gain into a wash sale.

That distinction becomes important in Tax-Gain Harvesting.