Wash Sale Rule: Can a Loss Be Permanently Disallowed?

17 But what if the LOT A shares are already long-term when the wash sale happens? Does that mean my short-term loss effectively becomes a long-term loss since it's now attached to shares that would be sold as long-term? Seems like a sneaky way the IRS turns short-term losses into long-term ones.

9 Yes, that's exactly what happens - the character of the loss changes to match the replacement shares. So if your LOT A shares are already long-term when the wash sale occurs, the disallowed short-term loss essentially becomes part of a long-term position. This is actually one of the tax planning considerations with wash sales. The IRS isn't being sneaky - this is just how the rule works. Since the disallowed loss becomes part of the basis of your replacement shares, it naturally takes on the holding period characteristics of those shares.

11 How does it handle more complex situations? Like if you have multiple wash sales across different securities or if you've been trading options too? My situation is pretty messy with hundreds of trades.

19 I'm skeptical. Most tax software already handles wash sales. What does this do that's actually different from what TurboTax or TaxAct already does with their premium versions?

5 For complex situations with multiple wash sales across different securities, it works surprisingly well. It categorizes everything clearly and shows the chain of connected transactions. And yes, it handles options trades too - distinguishing between different contracts and expiration dates. The big difference from TurboTax or other tax software is that it's proactive rather than just calculating after the fact. It shows you opportunities to harvest tax losses without triggering new wash sales and identifies which specific lots you should sell before year-end to optimize your tax situation. Traditional tax software just tells you what happened, not what you should do next.

7 Wait, how exactly does this work? Do they somehow put you ahead in the IRS phone queue? That seems impossible. I've tried calling the IRS dozens of times about my wash sale questions and always give up after being on hold forever.

19 Sorry, but this sounds too good to be true. The IRS phone system is notoriously awful. I seriously doubt any service can magically get you through. Also, most IRS phone agents give contradictory information about complex issues like wash sales anyway.

13 It doesn't put you ahead in the queue - what it does is automate the waiting process. You basically register your phone number, and their system calls the IRS and waits on hold for you. When they finally reach a human agent, you get a call back to connect with the agent. No magic, just technology handling the tedious hold time for you. The point about contradictory information is fair - you might get different answers from different agents. But in my case, I finally got a senior agent who clearly knew the tax code well and provided specific citations for how wash sales should be handled with my brokerage and IRA accounts.

4 Wait, seriously? So if I sell something at a loss in my individual account, and my wife buys the same stock in her separate account within 30 days, that's still a wash sale? Do brokerages even track this across different people's accounts?

22 Yes, that's absolutely right! The wash sale rule applies to purchases by your spouse and even purchases in your IRA or your spouse's IRA. Most brokerages don't track this across different accounts or different people - it's on you to identify these wash sales when filing taxes. This is why I manually review all our family trading activity at tax time. Brokerages will report wash sales within the same account on your 1099-B, but they won't catch these cross-account or spouse-related wash sales.

16 I've been using specific identification for years and it's a game changer for tax planning. You can strategically choose which lots to sell to work around potential wash sales. Just make sure you're documenting your lot selections at the time of sale - most modern brokerages let you pick exactly which shares you're selling right in the trading interface.

Thanks for the clear explanation! This is really helpful. I'm curious about the timing aspect - since you mentioned that LOT A becomes long-term, does the wash sale rule affect the holding period at all? Or does LOT A keep its original purchase date of Day 0 for determining long-term vs short-term treatment when I eventually sell it? Also, are there any strategies you'd recommend for avoiding wash sales in the first place when using tax-sensitive accounting methods? It seems like this method might make you more prone to wash sales since it prioritizes selling losses first.

Great question about holding periods! LOT A keeps its original purchase date of Day 0 for determining long-term vs short-term treatment. The wash sale rule doesn't reset the holding period of the replacement shares - it only adjusts the basis and potentially the holding period of the disallowed loss itself. So when you eventually sell LOT A, it will still be treated as long-term (since it was held more than a year from Day 0), but the $250 loss that gets incorporated into its basis will also be treated as long-term at that point. For avoiding wash sales with tax-sensitive methods, here are a few strategies: 1. Wait 31 days before repurchasing the same security after a loss sale 2. Consider buying a similar but not "substantially identical" security (like a different company in the same sector) 3. Use ETFs that track the same index but from different providers 4. Plan your loss harvesting earlier in the year so you have more flexibility with timing The tax-sensitive method can indeed make you more prone to wash sales since it does prioritize losses, so extra planning is definitely worthwhile!

This is incredibly helpful advice! I never thought about DRIPs potentially triggering wash sales - that's such a sneaky gotcha that could mess up careful tax planning. The "parking" strategy sounds smart too. Do you have any specific recommendations for similar ETFs that work well for this? For instance, if I'm holding individual tech stocks, would switching between QQQ and VGT be different enough to avoid the substantially identical rule, or do I need to go broader like VTI? Also, I'm curious about your spreadsheet setup - do you track this manually or have you found any tools that can automatically pull in data from multiple brokerages? Managing this across several accounts sounds like a lot of work but seems essential for anyone doing active tax loss harvesting.

Great point about DRIPs! I had no idea those could trigger wash sales too. For the "parking" strategy with tech stocks, I've had good success with these pairings: - Individual tech stocks → QQQ or VGT (both should be different enough) - QQQ ↔ VGT (these track different indexes so definitely safe) - Individual stocks → broader market ETFs like VTI or SPY - Large cap growth → small cap value ETFs for maximum differentiation The key is making sure the securities aren't "substantially identical." Individual stocks vs ETFs are almost always safe, and ETFs that track different indexes (even in similar sectors) should be fine. For tracking across accounts, I use a combination of approaches: - Manual CSV downloads from each brokerage monthly - A Python script I wrote that parses the files and flags potential wash sales - Portfolio tracking tools like Personal Capital for the big picture view The manual work is tedious but I've found it's worth it. Missing just one cross-account wash sale can cost you hundreds in lost tax benefits. Plus, the discipline of tracking everything has made me a much more strategic trader overall. Have you run into the IRA wash sale issue mentioned earlier? That's another nasty gotcha where losses can be permanently disallowed.