Wash Sales — Frequently Asked Questions

The information below is general education about how wash sale rules are applied to brokerage accounts. It is not tax advice, and individual results may vary. Please consult a qualified tax advisor about your personal situation.

Under IRS rules (Internal Revenue Code §1091), a wash sale occurs when a security is sold at a loss and the same or a substantially identical security is purchased within a 61-day window — the 30 days before the sale, the day of the sale, and the 30 days after the sale. The loss on the sale is "disallowed" for current tax reporting. The disallowed loss is generally not gone; it is added to the cost basis of the replacement shares, and it affects your reported gain or loss when those replacement shares are eventually sold.

The replacement shares also inherit the holding period of the shares they replaced, carrying a deemed acquisition date equal to the original shares' purchase date — this determines whether a later sale of the replacement shares is treated as long-term or short-term, and can affect the order lots are sold in under your account's FIFO or LIFO method.

Wash sales are identified automatically. If shares are sold at a loss and the same security is bought within 30 days before or after that sale — including a repurchase on the same day — the rule applies. This is common for active traders who buy and sell the same security repeatedly. These adjustments are applied by our clearing firm, Apex Clearing Corporation, as part of standard cost basis processing under IRS rules.

No. A wash sale adjustment does not remove cash from your account. The proceeds of each sale are credited based on your execution price, less any applicable fees. A wash sale is a cost basis and tax reporting adjustment only.

No. The wash sale column shows a loss that was disallowed for tax reporting purposes, not a gain being withheld. For example, suppose shares sold for $9,960 that had a cost basis of $10,000 — a $40 loss — and the same security is repurchased within the 61-day window. The $40 appears in the wash sale (disallowed) column, and the net gain/loss column shows $0.00. The $40 is a loss whose tax recognition has been deferred and added to the cost basis of the replacement shares. The columns on the report read, in order: proceeds, cost basis, wash sale disallowed, net gain/loss.

No. Your actual results are determined by your execution prices and market movement. The wash sale changes only the tax-reported cost basis of your shares and the timing of when a loss counts for tax purposes.

When shares are bought, the Positions page of our platform initially shows the execution price as the cost basis. Wash sale adjustments are applied during post-trade processing, generally overnight around settlement. If a disallowed loss from an earlier sale of the same security was added to your new shares, the displayed basis increases at that point. Both figures reflect your account accurately: the first is your trade price, and the updated figure is your tax-adjusted cost basis. Your actual position value is not changed by the adjustment.

Unrealized profit/loss on the Positions page is calculated from your adjusted cost basis. When a disallowed loss is added to the cost basis of the new shares, that raises their basis and makes your displayed unrealized profit/loss look better by that same amount — but this reflects a loss already incurred on the earlier sale, now carried in the cost basis of the new shares. The loss isn't lost; it's deferred and will be reflected as a realized loss when you eventually sell those replacement shares (unless another wash sale applies at that time).

The average cost shown is the total adjusted cost basis divided by the number of shares. If wash sale losses have been added to any of the lots, the adjusted basis — and therefore the average — will be higher than an average computed from execution prices alone. Lot-by-lot detail, including each adjustment, is available under Positions (Tax Lot Detail).

Generally, no. The disallowed loss is deferred, not eliminated: it is added to the cost basis of the replacement shares, which reduces your reported gain (or increases your reported loss) when those shares are sold — provided that later sale does not itself trigger another wash sale. How and when a deferred loss is ultimately recognized depends on your subsequent trading and individual circumstances; please consult your tax advisor.

The rule is triggered by the timing of the purchase relative to a loss sale, not by whether the new shares were later sold. A purchase of a substantially identical security within the 61-day window is treated as a replacement purchase, even if you still hold those shares. The disallowed loss is carried in their cost basis until they are sold.

The wash sale window looks in both directions. A purchase made within the 30 days before a loss sale is treated as a replacement purchase, just like one made after. This is why a single loss sale can produce more than one adjustment — for example, one applied to a purchase made shortly before the sale and one to a purchase made shortly after.

No. The rule applies share-for-share. For example, if 50 shares are sold at a loss and 30 shares are repurchased within the window, the loss on 30 shares is disallowed and added to the replacement shares' basis; the loss on the other 20 shares is generally allowed — unless additional shares of the same or a substantially identical security are purchased before the window closes, in which case more of the original loss would be disallowed and added to the basis of those shares instead.

Replacement shares in a wash sale inherit the holding period of the shares they replaced. The system assigns them a deemed acquisition date — the date of the original loss-shares — and the account's lot-relief method (FIFO or LIFO) runs on those deemed dates. Under FIFO, replacement shares carrying an older deemed date move earlier in the queue and may be relieved before lots bought earlier by calendar date. Under LIFO, the same effect works in reverse. In both cases, the accounting method is applied consistently, using the wash-sale-adjusted acquisition dates.

Wash sale and cost basis calculations are automated processes administered by our clearing firm consistently under IRS guidelines, and lot-specific cost figures cannot be modified manually. If you believe an adjustment was applied incorrectly, we can request that the clearing firm conduct an additional review of the calculations. You may contact Client Services to initiate that request.

After logging in to your Firstrade account, go to Accounts → Gain/Loss → Current Year Realized Gain/Loss for the breakdown of each closed lot, including adjusted cost basis and wash sale amounts. Open-position detail is available under Positions. Adjustments are also reflected on your Form 1099-B at year-end.

Wash sale entries can appear in IRA activity as part of standard cost basis processing. Because gains and losses within an IRA are generally not reported the way they are in a taxable account, these entries typically do not affect the tax treatment of activity occurring entirely within the IRA. One important exception involves multiple accounts: under IRS guidance, if you sell a security at a loss in a taxable account and purchase the same or a substantially identical security in an IRA within the wash sale window, the loss may be permanently disallowed — so instead of being deferred, it's lost entirely. Also, brokerage systems generally identify wash sales only within a single account, so activity across accounts is your responsibility to track. Because the treatment of retirement accounts depends on your individual circumstances, please consult a qualified tax advisor.

Wash sale rules are a US tax reporting requirement under Internal Revenue Code §1091. As a US-based brokerage, Firstrade applies wash sale adjustments as part of standard cost basis processing on all accounts, regardless of the account holder's country of residence. How this activity is treated for your individual tax filing depends on your country of residence and personal circumstances — the US wash sale rule may or may not have any bearing on your home country's tax treatment. We recommend consulting a qualified tax advisor regarding your situation.

Your Form 1099-B reports each sale with its proceeds, adjusted cost basis, and any wash sale loss disallowed, consistent with the figures in the Realized Gain/Loss report. If a wash sale and the sale of the replacement shares both occur within the same tax year, the adjustment generally offsets within that year's reporting, though individual results can vary.

Start with the Realized Gain/Loss report and Tax Lot Detail, which show the figures used for each lot. If you would like help reviewing them, contact Client Services, and we would be glad to walk through the lots with you. If you believe an adjustment was applied incorrectly, we can submit a review request to our clearing firm on your behalf.

Firstrade Securities, Inc. does not provide tax or legal advice. Wash sale adjustments are applied for cost basis reporting purposes under IRS regulations; how they affect your individual tax return depends on your circumstances. Please consult a qualified tax professional.