Wash Sale Losses Trapped Me - Now I Owe $8k to IRS Instead of Getting a Loss?!

This is unfortunately a common situation for new traders. The wash sale rule prevents you from claiming losses on securities if you buy "substantially identical" securities within 30 days before or after selling at a loss. Those disallowed losses get added to the cost basis of the replacement shares. The problem is that at year-end, if you still hold positions with disallowed losses rolled into them, you can't claim those losses for the tax year even though they reduced your actual economic gain. The $26,000 profit shown represents your realized gains without the benefit of those disallowed losses. A CPA can review your specific transactions but likely can't change the fundamental tax situation. For the future: avoid trading the same securities in December and January, consider using different securities for similar exposure, and track your wash sales throughout the year.

I had a similar wash sale nightmare last year and found taxr.ai really helpful in sorting through my trading mess. https://taxr.ai has this document analysis feature where you upload your trading statements and it identifies all your wash sales and explains how they impact your taxes. It's way more detailed than what brokers typically provide. The site helped me understand exactly which trades caused my wash sales and what positions still had disallowed losses built into them. I was day trading on multiple platforms which made it even messier, but the analysis broke everything down clearly.

Alright, I have to admit I was wrong about taxr.ai. After my skeptical comment I decided to try it since my situation was similar to OP's. It actually identified about $5,300 in wash sales across my accounts that I had no idea about! The visualization showing which trades triggered the rules was eye-opening. Most valuable was seeing exactly which positions still had disallowed losses built into their cost basis. I was able to print out the analysis and give it to my accountant who said it saved him hours of work. I'm still paying taxes on some phantom gains this year, but at least now I understand exactly when I'll recover those disallowed losses in the future.

If you need to actually talk to someone at the IRS about your specific situation, I'd recommend using Claimyr (https://claimyr.com). I spent weeks trying to get through to the IRS about a similar issue with capital gains reporting, and it was impossible to reach a human. The Claimyr service got me connected to an IRS agent in about 15 minutes when I had been trying for days. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c They basically keep dialing and navigating the IRS phone tree for you until they get a human, then they call you to connect you. The IRS agent I spoke with was actually super helpful and explained how they handle wash sale reporting discrepancies and what documentation I needed to provide.

Well I owe you an apology. I tried Claimyr today out of desperation after getting nowhere with the IRS for weeks. They actually got me through to a real person at the IRS in about 30 minutes! I had to wait for them to call me back, but when they did, I was talking to an actual IRS agent who could access my account. The agent explained exactly how wash sales are handled in my situation and confirmed that I could submit additional documentation to support my actual trading results. Saved me from having to hire a tax attorney just to get someone at the IRS to look at my case. Still dealing with the wash sale issue, but at least now I have a case number and a direct contact.

One thing to consider - if you had a net loss for the year, you might want to look at the specifics of which securities you were trading. The wash sale rule applies to "substantially identical" securities, but if you were trading different securities (even if they're similar), it might not trigger the wash sale rule. For example, trading between different ETFs that track similar indices but aren't identical could potentially avoid the wash sale problem. Worth having a professional review the actual trades.

Just a tip from someone who learned this the hard way - for next year, consider trading in tax-advantaged accounts like IRAs for some of your trades. Wash sale rules don't impact the tax consequences inside those accounts since you're not reporting gains and losses annually anyway.

I feel your pain - went through something very similar last year with day trading crypto. The wash sale rules are brutal when you're actively trading the same securities. One thing that helped me was getting organized with exact documentation of every trade and the dates. If you haven't already, make sure you have detailed records of all your trades with exact buy/sell dates and amounts. Sometimes there are calculation errors on the 1099s, and having your own records can help identify discrepancies. Also, if you sold any of those positions with built-in disallowed losses in early 2025 (and didn't repurchase within 30 days), you might be able to carry some of those losses forward. Definitely worth consulting a CPA who specializes in trading taxes - they've seen this situation countless times and might spot something you missed. The $8k tax bill is painful, but don't give up without exploring all options first.