A wash sale occurs when an individual sells or otherwise disposes of stock or securities (including a contract or option to acquire or sell stock or securities) at a loss and within the 30 days before or after the sale or disposition does any of the following:
- Buy substantially identical stock or securities
- Acquire substantially identical stock or securities in a fully taxable trade
- Enter into a contract or option to acquire substantially identical stock or securities
- Acquire substantially identical stock or securities for their IRA or Roth IRA
A sale and purchase with the same broker within the 30-day time frame that results in a loss is indicated on Form 1099-B with an amount in Box 1g "Wash sale loss disallowed" or on a brokerage statement with adjustment code "W". If you are aggregating 1099-B short-term and long-term transactions in the tax return, this transaction cannot be included with the aggregate but will need to be entered separately.
Note that wash sales can also occur if within the 30-day time frame a taxpayer is buying and selling the same stock with different brokers, or the taxpayer's spouse is buying and selling the same stock, or a corporation either of them controls is buying and selling the same stock. These transactions won't have a wash sale indicated on Form 1099-B or the brokerage statement, but they are wash sales nonetheless.
A dealer in stocks or securities can deduct a loss for what would otherwise be a wash sale if it was incurred in the ordinary course of trade or business. Otherwise, if the wash sale is not deductible, the unallowed loss is added to the basis of the stock subsequently purchased.
To enter a wash sale on Form 8949 in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040), select:
- Capital Gain/Loss (Sch D)
- New - enter all information required as indicated on the Form 1099-B, then OK
- If Net Gain/Loss is a loss and the loss is nondeductible, do the following:
- Select Adjustment Code.
- Check the W - Nondeductible Loss from a Wash Sale check box, then click OK.
- Select Adjustment to Gain/Loss and enter as a positive number the amount of the loss.
- Verify Net Gain/Loss equals $0
Note: This is a guide to entering a wash sale into the TaxSlayer Pro program. This is not intended as tax advice.