™30-second takeaway
Wash Sales, Cost Basis and Holding Period, in one thought.
Follow a disallowed loss into the replacement shares’ adjusted basis and holding period.
See how each idea connects before exploring the details below.
Put the idea into numbers.
You sell 100 shares for a $1,000 loss and buy 40 substantially identical shares 19 days later. A simplified taxable-account illustration potentially matches 40 shares and defers $400 of the loss into their adjusted basis.
Where understanding breaks down.
Checking only the account where the loss occurred. Replacement purchases through another broker, a spouse or an IRA may matter even when one Form 1099-B does not show the whole pattern.
Remember this.
Test the dates, investment identity, matched quantity, account type and basis treatment—then verify the result under current tax guidance.
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.
Use this as a foundation, then verify current rules and product details with primary sources and regulated providers before acting.
Primary sources and further reading
Verify the current tax rules.
Tax law, classifications and reporting requirements can change. Use current IRS guidance and a qualified tax professional for your circumstances.
Connect the concept
Go from explanation to application.
Continue with a related definition and an educational calculator that makes the numbers easier to see.