What is the wash-sale rule?
Tax-loss harvesting is the practice of selling losing positions to offset capital gains (and up to $3,000 of ordinary income a year). The wash-sale rule, in IRS Section 1091, prevents you from claiming the loss if you buy the same or a ‘substantially identical’ security within 30 days before or after the sale, that’s a 61-day window total. The disallowed loss is added to the cost basis of the replacement shares, so it’s deferred, not destroyed, but you lose the immediate tax benefit.
You sell VOO at a $5,000 loss in December to offset gains elsewhere. Eight days later you rebuy VOO. The $5,000 loss is disallowed for this tax year. To stay clean, sell VOO and immediately buy a different S&P 500 tracker like SPLG or IVV. Better, swap into a total-market fund like VTI, similar exposure, not substantially identical. The harvested loss is now usable.
Forgetting the rule applies across accounts, including your spouse’s account and your IRA. A repurchase in your Roth IRA still triggers a wash sale on the loss in your taxable account, and the basis adjustment is permanently lost since the IRA basis doesn’t matter for taxes.
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