Do I owe taxes on profits from a $71,000 loss due to wash sales?

This is a common misunderstanding with wash sales. When you have disallowed losses due to wash sales, those losses don't disappear completely - they get added to the cost basis of the replacement shares you purchased. Let me explain: When you sell a stock at a loss and then buy it back within 30 days before or after the sale, that's a wash sale. The IRS doesn't allow you to claim that loss immediately. Instead, the disallowed loss gets added to the cost basis of your replacement shares. So while your 1099-B might show realized gains because some losses were disallowed, those disallowed losses are actually just deferred until you ultimately sell the replacement shares (as long as you don't trigger another wash sale). What you need to determine is whether you still own the replacement shares at year-end. If you sold all positions by December 31st and didn't repurchase within the wash sale window, then all your true economic losses should eventually be reflected.

Hey there! I went through almost the exact same situation last year. I was day trading and ended up with about $45,000 in wash sale disallowed losses while my actual portfolio was down like $15,000. It was maddening! I found this really helpful tax analysis tool called taxr.ai (https://taxr.ai) that helped me understand my situation better. It basically analyzed all my trading activity and showed me which specific trades triggered the wash sales and how the disallowed losses affected my tax situation. The tool helped me realize I still had a bunch of replacement shares with adjusted cost basis at year end. Once I understood how the mechanics worked, I was able to properly report everything on my Schedule D and Form 8949.

Alright, I need to follow up on my skeptical comment. I actually tried taxr.ai after posting and I'm legitimately surprised. It correctly identified several wash sales that happened across my two different brokerage accounts that neither broker had caught because they don't talk to each other. The visualization of my trading patterns was eye-opening - I could literally see when I was panic selling and rebuying the same securities. The tax impact analysis showed me exactly why my 1099 was showing gains despite my portfolio being down. For anyone dealing with wash sale headaches, this saved me a ton of confusion. I was able to export everything properly formatted for my tax filing and my accountant said it saved him at least 2 hours of work untangling my mess.

If you need to talk to the IRS about this situation (which might be a good idea), let me save you some time and frustration. I spent THREE DAYS trying to get through to someone at the IRS about a similar wash sale issue last year. Finally discovered this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes instead of endless hold times. They have a demo video at https://youtu.be/_kiP6q8DX5c that shows how it works. The IRS agent I spoke with was able to explain exactly how to report my wash sales properly and confirmed that yes, sometimes you do have to pay taxes on "phantom gains" in one year even when your portfolio is down overall. At least I got a clear answer instead of stressing for weeks.

I have to eat my words about Claimyr. After complaining it sounded like a scam, I was desperate enough to try it for my wash sale situation. No joke - I got through to an IRS tax specialist in about 15 minutes after trying unsuccessfully for days on my own. The agent walked me through exactly how to handle reporting my wash sales on Form 8949. She explained that I needed to make sure all my adjustments were properly noted with the correct codes and that my cost basis matched what was on my corrected 1099-B. For what it's worth, she confirmed what others here said - those disallowed wash sale losses aren't gone forever, they're just deferred by being added to the basis of replacement shares. Once I sell those shares (without triggering another wash sale), I'll finally get the tax benefit of those losses.

Listen, wash sales are the absolute WORST for active traders. I learned this the hard way too. Here's what I do now to avoid this situation: 1. I use the specific identification method for all my trades 2. I track my 30-day windows carefully for any securities I've sold at a loss 3. I consider using different but similar securities (like trading between different ETFs in the same sector) 4. Most importantly - in December I evaluate all my positions and make strategic sales to capture losses where appropriate The key thing to remember is that if you close ALL positions that had wash sales before year-end and don't repurchase within 30 days, you should ultimately get all your economic losses recognized in the current tax year.

Has anyone considered using a traditional IRA or Roth IRA for active trading instead of a taxable account? I switched to doing most of my active trading in my IRA specifically to avoid wash sale headaches.

I feel your pain - went through something very similar last year and it's incredibly frustrating to owe taxes when your portfolio is actually down. One thing that helped me understand my situation better was creating a simple spreadsheet tracking all my wash sale adjustments. I listed each disallowed loss and which replacement shares got the basis adjustment. This helped me see exactly where my "missing" losses went and gave me confidence that I'd eventually get them back when I sell those positions. Also, don't panic about owing taxes on phantom gains - while it sucks in the short term, those deferred losses are sitting in your replacement shares' cost basis. As long as you eventually sell those shares without triggering another wash sale, you'll get the tax benefit. The timing just gets shifted around. For this year's filing, make sure you're reporting everything correctly on Form 8949 with the proper wash sale codes. If your broker didn't catch all the wash sales (especially if you trade across multiple accounts), you might need to make additional adjustments. The IRS takes wash sale reporting seriously, so getting it right is important. Hang in there - once you get through this tax year, you can plan better strategies to avoid this mess in the future!

I went through this exact nightmare two years ago and it nearly gave me a panic attack! Had about $55K in disallowed wash sale losses while my actual portfolio was down around $20K. The "phantom gains" tax bill was brutal. Here's what I learned that might help you: First, double-check that your broker correctly identified ALL wash sales. Mine missed several because I had some trades in a second account with them. Wash sales apply across all your accounts with the same SSN, not just individual accounts. Second, if you're still holding any of those replacement shares from the wash sales, consider whether it makes sense to sell them before year-end (as long as you don't repurchase within 30 days). This would finally allow you to recognize those deferred losses. The most important thing though - keep detailed records of everything. I created a master spreadsheet showing every wash sale, which replacement shares got the basis adjustment, and which ones I still owned. This saved me when I got audited the following year. One last tip: if your situation is really complex, consider getting professional help. I ended up paying a CPA who specializes in trader taxes about $800, but they found an additional $12K in losses I had missed and properly structured everything for the IRS. Sometimes it's worth the investment to get it right. You're not alone in this - wash sales catch a lot of active traders off guard. The silver lining is that those losses aren't gone forever, just deferred. Hang in there!