What is Wash-Sale Rule (IRC §1091)?

What is the Wash-Sale Rule?

Under IRC Section 1091, if you sell a stock or ETF at a loss and repurchase the exact same security—or a "substantially identical" security or call option—within a 61-day window (30 days before the sale, the day of the sale, and 30 days after the sale), the IRS disallows the tax loss for that year and adds the disallowed loss to the cost basis of the replacement shares.

Critical Traps Investors Miss

• Cross-Account Enforcement (Including IRAs): The wash-sale rule applies across all accounts owned by you and your spouse. If you sell VOO at a loss in your taxable brokerage account and an automated dividend reinvestment (DRIP) buys VOO inside your Roth IRA 10 days later, it triggers a wash sale—and because IRA basis cannot be increased, that tax loss is permanently lost forever.
• Substantially Identical ETFs: Selling Vanguard VOO and buying State Street SPY (both tracking the exact same S&P 500 index) risks a wash-sale challenge; swapping VOO (S&P 500) for SCHB (Dow Jones U.S. Broad Market) tracks a different index and avoids the wash-sale rule.