A wash sale occurs when you sell or otherwise dispose 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 you do 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 your IRA or Roth IRA
A loss from a wash sale cannot be deducted on the tax return unless the loss was incurred in the ordinary course of business as a dealer in stock or securities. The unallowed loss is added to the basis of the stock subsequently purchased.
A sale that the broker knows is a wash sale is indicated on Form 1099-B with adjustment code "W".
Note: A wash sale may also occur if within the 30-day time frame a taxpayer is buying and selling the same stocks with more than one broker, or the taxpayer's spouse is buying and selling the same stocks, or a corporation either of them controls is buying and selling the same stocks.
To enter a wash sale on Schedule D 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 Adjustment to Gain/Loss is a loss and the loss is nondeductible, do the following:
- Select Adjustment Code.
- W - Nondeductible Loss from a Wash Sale - check the box, then 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.