Wash Sale Rule

How the rule works

• The window is 61 days total — 30 days before the sale, the day of the sale, and 30 days after.
• The disallowed loss is added to the cost basis of the replacement security, deferring the deduction (not eliminating it).
• "Substantially identical" is a facts-and-circumstances test — same security clearly qualifies; similar but not identical (e.g., two different broad-market index ETFs from different issuers) is debated and risk-managed in practice.

What counts as the same taxpayer

1. The taxpayer's own accounts at any institution.
2. The taxpayer's spouse's accounts.
3. The taxpayer's IRA — repurchasing in an IRA after a taxable-account loss does not cure the wash sale and effectively eliminates the loss permanently.
4. Trusts and entities the taxpayer controls.

Tax-loss harvesting strategies

The wash sale rule is the central constraint on tax-loss harvesting. Common approaches:

• Wait the 31 days before repurchasing the same security.
• Replace with a not-substantially-identical alternative (a different index ETF tracking a similar but distinct benchmark).
• Coordinate across all household accounts to avoid inadvertent reacquisitions.

What advisors must monitor

• Spouse-account purchases of the same security within 30 days of a loss sale.
• Dividend reinvestment programs that automatically purchase shares within the window.
• IRA purchases — particularly destructive because the loss never recovers.
• Substantially-identical determinations — especially with similar index ETFs.

How StratiFi thinks about the wash sale rule

The wash sale rule is technical but the operational impact is large. Tax-loss harvesting only delivers value if the loss is actually deductible — wash sale violations turn a planned tax benefit into a deferred or lost deduction. The discipline is system-level: every loss sale checked against household-wide purchases over 31 days, with the alternative-security choice documented if the harvest is to proceed without waiting.