™Stock Market University · Research, Taxes & Investor Operations
Wash Sales, Cost Basis and Holding Period
Understand the idea. See the connections.
Follow a disallowed loss into the replacement shares’ adjusted basis and holding period.
The idea to understand
Connect a disallowed taxable-account loss to replacement-share basis and holding-period adjustments.
The explanation
The essentials, explained.
Follow the idea, then work through an example. Pause at the self-check whenever you are ready.
Basis carries the deferred loss
When the normal taxable-account rule applies, the disallowed loss is added to the cost of the replacement stock or securities. The higher adjusted basis affects the gain or loss calculated when those replacement shares are later disposed of.
Holding periods can combine
The holding period of the replacement property generally includes the holding period of the stock or securities sold. This can affect whether a later result is treated as short term or long term.
A simple basis example
Suppose 100 shares with a $5,000 basis are sold for $4,000, creating a $1,000 loss, and 100 substantially identical replacement shares are bought inside the window for $4,200. In a typical taxable-account example, the replacement basis becomes $5,200: the $4,200 purchase plus the $1,000 deferred loss.
Adjusted basis needs continuity
If replacement shares are later sold and replaced again, adjustments can continue through more than one transaction. Lot-level records are essential.
Optional context & practice
Why this matters
A disallowed loss and replacement basis adjustment change the tax record; they are not the same as erasing the economic loss.
Useful vocabulary
Adjusted basis: An investment’s original tax basis after required increases or decreases, including certain wash-sale adjustments. Disallowed loss: A loss that applicable tax rules do not permit to be recognized as a deduction under the evaluated circumstances. Holding period: The period treated as ownership for a specified tax or investment calculation, applying the relevant counting rules.
Only matched replacement shares receive the allocated loss
In the ordinary taxable-account treatment, preserve the disallowed amount in the specific matched replacements and carry the applicable holding period. Do not average that adjustment across unrelated or unmatched shares without an allowed basis method. Record later disposals, because another replacement can continue the deferral. IRA replacements do not use the same basis-preservation mechanism.
Try it with a hypothetical example
Reconcile a simplified taxable-account loss sale and replacement lot using IRS Publication 550. Track allocated loss, adjusted basis and holding period.
A question to think through
100 loss shares create a $1,000 loss; 200 replacement shares cost $42 each. Only 100 match. How is the illustrative basis allocated?
Compare your reasoning
Matched shares have $52 each; unmatched shares remain $42 each. Total replacement basis is $9,400, assuming one equal-loss lot and no other adjustments.
A moment to reflect · optional
What record must be updated after a matched taxable-account wash sale?
Think through your answer, then compare it with the explanation.
Reveal the explanation
The replacement shares’ adjusted basis and, where applicable, holding period.
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Sources & editorial notes
Reviewed 2026-10-13 · My Market Book editorial team. Examples are hypothetical unless identified as historical. General education, not a personal investment recommendation. Next scheduled review: 2026-11-12, or earlier after a material change. Rule and product sensitive.