How to report wash sales on your tax return

When a wash sale occurs, your loss does not simply disappear from your tax return. It still appears on Form 8949, but with an adjustment that defers the loss into the cost basis of the replacement shares. Getting the reporting right matters because the IRS cross-checks your return against the 1099-B your broker files.

Disclaimer: This article is for educational purposes only and does not constitute tax or financial advice. Consult a qualified tax professional for guidance specific to your situation.

What does "wash sale loss disallowed" mean?

If you see "wash sale loss disallowed" on your 1099-B or brokerage statement, it means the IRS wash sale rule has been triggered for that transaction. You sold a security at a loss and repurchased the same (or a substantially identical) security within 30 days before or after the sale. The loss you would normally deduct is disallowed for the current tax year. Instead, the disallowed amount is added to the cost basis of the replacement shares, deferring the tax benefit to a future sale.

The wash sale loss disallowed amount is not a penalty and does not mean you lose the money. It means you cannot claim that loss as a deduction right now. When you eventually sell the replacement shares in a taxable account without triggering another wash sale, the higher cost basis will reduce your taxable gain (or increase your deductible loss) at that point. The one exception is when the replacement purchase happens in a retirement account, where the loss can be permanently lost. See our guide on wash sales and retirement accounts for details.

Where wash sales appear on your tax forms

Wash sale reporting touches three documents:

1099-B (from your broker). Your broker reports each sale, including the proceeds, cost basis, and gain or loss. If a wash sale occurred within the same account, the broker may report the disallowed loss amount in Box 1g, labelled "Wash sale loss disallowed." Some brokers adjust the cost basis to account for the wash sale; others report the original cost basis and leave the adjustment to you.

Form 8949 (filed with your return). This is where you list each individual sale. For wash sales, column (f) gets the code W and column (g) gets the disallowed loss amount as a positive number. This adjustment increases your reported gain (or decreases your reported loss) for that transaction.

Schedule D. The totals from Form 8949 flow into Schedule D, which summarises your short-term and long-term capital gains and losses. You do not make wash sale adjustments on Schedule D directly; they are already baked into the Form 8949 figures.

For a broader overview of Form 8949, see our guide on how to report stock sales on your taxes. For a full explanation of the wash sale rule itself, see the wash sale rule explained.

What your broker reports vs what you must report

This is one of the most important points to understand: your broker's 1099-B may not tell the whole story.

Brokers are only required to track wash sales within the same account and the same CUSIP (the unique identifier for each security). If you sell a stock at a loss in one brokerage account and repurchase it in a different brokerage account, neither broker will report a wash sale. The same applies if you repurchase in an IRA, 401(k), or your spouse's account.

In all of these cross-account situations, the wash sale still applies under IRS rules. You are responsible for making the adjustment on your Form 8949, even when your 1099-B shows no wash sale. For more on this cross-account trap (especially with retirement accounts), see our guide on wash sales and retirement accounts.

The bottom line: your 1099-B is the starting point, not the final word. Always review your transactions for wash sales that span multiple accounts.

Worked example 1: basic wash sale

Maria sells 100 shares of XYZ on March 5 for $4,000. She originally purchased them for $5,000, resulting in a $1,000 loss. On March 20 (15 days later), she buys 100 shares of XYZ at $4,200.

Because she repurchased within 30 days, the entire $1,000 loss is disallowed.

Her Form 8949 row for the sale:

The $1,000 adjustment in column (g) offsets the $1,000 loss, bringing the reported gain/loss to $0.

What happens to the replacement shares: Maria's cost basis on the 100 new shares increases from $4,200 to $5,200 ($4,200 purchase price + $1,000 disallowed loss). When she eventually sells these shares, the higher cost basis will reduce her gain or increase her loss, effectively deferring the original loss rather than eliminating it.

Worked example 2: partial wash sale

James sells 200 shares of ABC on April 10 for $8,000. His cost basis was $10,000, creating a $2,000 loss. On April 25 (15 days later), he buys back 80 shares of ABC at $42 per share.

Because he only repurchased 80 of the 200 shares, this is a partial wash sale. The disallowed portion is proportional to the replacement shares:

• Shares repurchased: 80
• Shares sold: 200
• Disallowed percentage: 80 / 200 = 40%
• Disallowed loss: $2,000 x 40% = $800
• Deductible loss: $2,000 x 60% = $1,200

His Form 8949 row:

James can deduct $1,200 of the loss. The remaining $800 is added to the cost basis of his 80 replacement shares. His per-share basis on the replacements increases from $42 to $52 ($42 + $800/80 shares).

This is one of the most common wash sale situations, and many investors either report the full loss (overstating the deduction) or disallow the entire loss (understating the deduction). Getting the proportion right matters.

Worked example 3: multiple wash sales in one year

Lisa is actively trading DEF stock throughout the year. Here is her transaction history:

1. January 10: Buys 100 shares at $50 (cost basis: $5,000)
2. March 3: Sells 100 shares at $45 (proceeds: $4,500, loss: $500)
3. March 15: Buys 100 shares at $44 (12 days after the sale, triggers wash sale)
4. June 1: Sells 100 shares at $40 (proceeds: $4,000)
5. June 20: Buys 100 shares at $41 (19 days after the sale, triggers wash sale)

Transaction 2 (March 3 sale): The $500 loss is disallowed because of the March 15 repurchase. The $500 is added to the new shares' cost basis. The March 15 shares now have a basis of $4,900 ($4,400 purchase price + $500 disallowed loss).

Transaction 4 (June 1 sale): Lisa sells the March 15 shares (adjusted basis $4,900) for $4,000, creating a $900 loss. But the June 20 repurchase triggers another wash sale. The $900 loss is disallowed and added to the June 20 shares' basis. Those shares now have a basis of $5,000 ($4,100 purchase price + $900 disallowed loss).

The disallowed losses "chain" from one wash sale to the next, accumulating in the cost basis of each replacement lot. This is not a problem if Lisa eventually sells without triggering another wash sale, because the accumulated losses will be reflected in a larger deductible loss at that point. But if the chaining continues through year-end, she may have no deductible loss for the tax year despite the stock declining in value.

Lisa's Form 8949 entries:

Note that in the second row, the cost basis reported is the adjusted basis ($4,900), which reflects the $500 disallowed loss from the first wash sale that was added to the March 15 shares. The adjustment column captures the full $900 disallowed from this sale. The math reconciles: $4,000 - $4,900 + $900 = $0. Your broker may or may not reflect the prior wash sale adjustment in the cost basis on the 1099-B, so check carefully and adjust if needed.

What to do when your broker gets it wrong

Broker-reported wash sales are not always correct. Here are the two most common problems:

Broker reports a wash sale that isn't one. This can happen if you sold in one account and the broker incorrectly flags a purchase in a different security as a wash sale. It can also happen if the broker's system does not properly account for sales in other accounts where the loss was already absorbed. If you believe the broker is wrong, report the 1099-B figures in columns (d) and (e) as shown on the form, then use columns (f) and (g) to correct the adjustment.

Broker misses a wash sale you need to self-report. This is the more common and more dangerous scenario. If you sold at a loss in one brokerage and repurchased in another (or in a retirement account), neither broker will flag it. You must add the code W and the disallowed amount in columns (f) and (g) yourself. Failing to self-report a wash sale can result in an IRS notice if they match your 1099-B data with purchase records from other accounts.

Common reporting mistakes

Ignoring cross-account wash sales. If you sell at a loss in one account and rebuy in another within 30 days, the wash sale rule applies regardless of whether your broker flagged it. This includes retirement accounts.

Reporting corrected figures directly instead of showing the adjustment. The IRS expects to see the 1099-B figures in columns (d) and (e), with any corrections made through columns (f) and (g). Changing the base figures without an adjustment code makes it harder for the IRS to match your return to the 1099-B and can trigger a notice.

Forgetting to adjust the replacement shares' cost basis for next year. The disallowed loss becomes part of the replacement shares' cost basis. If you sell those shares in the following tax year, you need to use the adjusted basis, not the original purchase price. Carry the adjustment forward in your records.

How TrackMyShares simplifies wash sale reporting

TrackMyShares scans your transaction history for same-symbol purchases within the 61-day window of a loss-realizing sale. When a wash sale is detected, the system flags it and shows the disallowed loss amount.

When you generate a US tax report, the wash sale data is included alongside your gains and losses, showing which transactions are affected and the disallowed amounts. This helps you identify which sales need the W code and what adjustment to enter on Form 8949.

If you use the consolidated portfolio feature, wash sale detection works across all underlying portfolios, helping you catch cross-account wash sales that individual brokers would miss.

For the full tax reporting workflow, see our US capital gains tax report feature.

Sign up for TrackMyShares to track your transactions, detect wash sales automatically, and generate tax reports that account for disallowed losses.