Why Does Your 1099-B Show a Wash Sale? (w/Examples) + FAQs

This article reflects federal tax rules as of June 2026 and covers tax year 2025 (the 2026 filing season). State rules are addressed separately below. Tax law changes — confirm current figures with the IRS before you file.

Your 1099-B shows a wash sale because you sold a security at a loss and bought the same or a “substantially identical” one within 30 days before or after that sale. For tax year 2025, the IRS disallows that loss. Your broker flags it in Box 1g and adds the loss to your new shares’ cost basis.

That number can feel alarming, especially when you expected a tax break and instead see a loss you cannot use this year. The wash sale rule (Internal Revenue Code Section 1091) does not erase your loss forever — it defers it by rolling the disallowed amount into the cost basis of the replacement shares, so you usually recover it later.

The stakes climb fast for active traders. The IRS estimates that around 60 million Americans own taxable brokerage accounts, and a single year-end buy-back can turn a real trading loss into a surprise “phantom” tax bill. Knowing why the flag appears — and what to do about it — protects both your refund and your records.

• 📉 Why the wash sale flag shows up on your 1099-B and what Box 1g really means.
• 🧮 How to do the cost-basis math yourself with fully worked dollar examples.
• 🗂️ Where to report it on Form 8949 (Code W) and Schedule D, line by line.
• ⚠️ What traps catch IRA owners, spouses, dividend reinvestors, and multi-account traders.
• ✅ What to do next to recover a disallowed loss and avoid triggering new ones.

What a Wash Sale Actually Is

A wash sale is the IRS’s way of stopping you from claiming a tax loss while keeping the same investment position. The rule lives in Section 1091 of the tax code, and the IRS explains it in Publication 550. In plain English: if you sell a stock at a loss and buy it right back, the IRS treats the loss as if it never happened for now.

The rule triggers inside a 61-day window: the 30 days before your sale, the day of the sale, and the 30 days after it. If you buy a substantially identical security anywhere in that window, the loss on the sale is disallowed. Many investors think the window is only “30 days after” — that misconception alone causes thousands of accidental wash sales, because a purchase you made before you sold can trigger it too.

The consequence is specific: the disallowed loss cannot reduce your capital gains or ordinary income this year. Instead, the broker adds it to the cost basis of your replacement shares and extends your holding period. You do not lose the money — you wait for it. The next step for most readers is simply to confirm the disallowed amount in Box 1g and decide whether to repair the position (covered below).

The 61-Day Window in Plain Terms

The window is wider than people expect. Count 30 calendar days back from your sale date, add the sale day, then count 30 days forward. That is a full 61 calendar days, not trading days. A purchase on day -28 counts just as much as one on day +5.

If you violate the window, the loss is disallowed and your broker reports it in Box 1g. A common misconception is that selling on December 31 “resets” everything for the new year — it does not, because the 30-day forward window runs into January. To safely harvest a loss, wait at least 31 days before repurchasing the same security, or buy a similar but not identical asset instead.

What “Substantially Identical” Means

“Substantially identical” generally means the same company’s stock or the same security — for example, selling Apple shares and rebuying Apple shares. It does not mean another company in the same industry. Selling Coca-Cola and buying Pepsi is not a wash sale, per IRS Publication 550.

The gray zone is funds. Two S&P 500 index funds from different providers are usually treated as not substantially identical, while the same fund sold and rebought clearly is. Options and contracts to buy the same stock also count. The consequence of guessing wrong is a disallowed loss you did not plan for, so when funds track the same index, switch to a different index or asset class to stay safe.

Why the Flag Appears on Your 1099-B

Your broker is legally required to track wash sales on “covered securities” and report them on Form 1099-B. When their system sees a loss sale followed (or preceded) by a matching purchase inside the 61-day window, it calculates the disallowed loss and prints it in Box 1g, labeled “Wash sale loss disallowed.”

Here is the part that surprises people: the broker only tracks wash sales within a single account and for the same security (CUSIP). The IRS, however, expects you to apply the rule across all your accounts, brokers, IRAs, and even your spouse’s accounts. So your 1099-B can understate your real wash sales. The consequence of ignoring this is an inaccurate return, so reconcile every brokerage statement before you file.

Box 1g Decoded

Box 1g is not your loss — it is the part of your loss the IRS will not let you deduct this year. It always appears as a positive number that gets added back to your loss. For example, a $500 raw loss with $500 in Box 1g nets to a $0 deductible loss for the year.

The consequence of misreading Box 1g is double-counting or missing the deferral entirely. A frequent misconception is that Box 1g is an extra tax owed — it is not; it is a deferral. Check that Box 1g never exceeds the actual loss on that lot, and if it looks wrong, call your broker for a corrected 1099-B.

Common Triggers You Didn’t Expect

Wash sales rarely come from a single obvious trade. Dividend reinvestment (DRIP) is the top hidden culprit: an automatic reinvested dividend buys new shares and can wash a loss you took weeks earlier. Employee stock purchase plans and automatic 401(k)-style buys do the same.

The consequence is a wash sale flag on a sale you thought was clean. Many investors mistakenly believe only manual trades count — but automated purchases trigger the rule identically. To avoid it, pause automatic reinvestment around any planned loss sale.

How the Cost-Basis Math Works (w/Examples)

When a loss is disallowed, the money is not gone — it shifts. The disallowed loss gets added to the cost basis of the replacement shares, and the holding period of the old shares is added to the new ones. This is the mechanism that lets you recover the loss when you finally sell for good.

Worked Example: The Loss You Get Back Later

Maria buys 100 shares of XYZ at $50, for a $5,000 cost. The price drops, and she sells all 100 for $4,000 — a $1,000 loss. Five days later she rebuys 100 shares of XYZ at $42, spending $4,200.

Because she rebought within 30 days, the $1,000 loss is disallowed and shows in Box 1g. That $1,000 is added to her new cost basis: $4,200 + $1,000 = $5,200 adjusted basis. When XYZ later climbs and Maria sells all 100 for $5,800, her gain is only $5,800 − $5,200 = $600, not $1,600. The disallowed $1,000 reduced her future gain by exactly $1,000 — she got it back. The next step is to record that adjusted basis so you do not overpay later.

Worked Example: The Year-End “Phantom Gain” Trap

David, an active trader, makes 400 trades in 2025. His real, net economic loss for the year is −$3,000. But he repeatedly sold losers and rebought them within days. By December 31, his open positions carry $18,000 of disallowed wash-sale losses baked into their cost basis.

Because those losses are deferred to 2026, David’s 2025 1099-B shows a taxable gain even though he lost money overall. If he is taxed at 24%, that phantom gain could cost real dollars now, with the offsetting loss not arriving until he closes the positions. The fix: close all wash-sale positions and stay out 31 days before year-end, or elect mark-to-market (below).

Which Situation Applies to You?

The wash sale rule hits different people in very different ways. Find your row, then read the linked section.

Your Situation	What to Focus On
Casual investor with one taxable account	Box 1g decoding and the recover-it-later math, since your broker tracks it for you
Tax-loss harvester	The 61-day window and “substantially identical” rules, to harvest losses cleanly
Active/day trader	The phantom-gain trap and the mark-to-market election
IRA or Roth IRA owner	The permanent-loss trap, because IRA wash sales are never recovered
Crypto holder	The current property classification, which keeps crypto outside the rule for now

The Form 8949 and Schedule D Walkthrough

You report wash sales on Form 8949, then carry the totals to Schedule D. Short-term sales (held one year or less) go in Part I; long-term sales go in Part II. Match the part to the box your broker checked on the 1099-B (A, B, D, or E).

For the loss sale, enter the description in column (a), the dates in (b) and (c), the proceeds in (d), and the cost basis in (e). To flag the wash sale, enter code W in column (f), and put the disallowed loss from Box 1g as a positive number in column (g). Column (h) — your gain or loss — is then (d) − (e) + (g), which adds the loss back. If your 1099-B already lists the wash sale correctly, you generally still report it so your Schedule D ties out.

Filling In Code W Step by Step

Suppose you sold for $4,500 with a $5,000 basis — a $500 loss — and rebought within 30 days. In column (d) enter $4,500, in (e) enter $5,000, in (f) enter W, and in (g) enter $500. Column (h) becomes $4,500 − $5,000 + $500 = $0.

The consequence of skipping the code-W adjustment is claiming a loss the IRS already disallowed, which can trigger a CP2000 notice and back taxes. A common mistake is entering the Box 1g figure as a negative — it must be positive. After entering it, total each part and carry the sums to Schedule D. For full mechanics, see a dedicated How to Fill Out Form 8949 guide and a Schedule D walkthrough on the capital-gains hub.

Three Common Scenarios

Scenario 1 — The accidental DRIP wash sale.

What Happened	Tax Outcome
You sold a mutual fund at a $400 loss, but a dividend reinvested 10 days later bought new shares	The $400 loss is disallowed and added to the new shares’ basis; turn off auto-reinvest next time

Scenario 2 — The clean tax-loss harvest.

What Happened	Tax Outcome
You sold an S&P 500 fund at a $2,000 loss and bought a total-market fund from a different provider	No wash sale; the full $2,000 loss is deductible against gains and up to $3,000 of ordinary income

Scenario 3 — The IRA permanent loss.

What Happened	Tax Outcome
You sold stock at a $1,500 loss in a taxable account and rebought it in your IRA within 30 days	The $1,500 loss is disallowed permanently — IRA basis is not adjusted, so the loss vanishes

The Traps That Catch Specific Investors

IRA and Roth IRA Wash Sales Are Permanent

Per IRS Revenue Ruling 2008-5, if you sell a security at a loss in your taxable account and buy it in your IRA or Roth IRA within the window, the loss is disallowed and never restored. Because the IRA’s basis does not adjust, the deferred loss simply disappears.

This is the harshest version of the rule. The consequence is a permanent loss of the deduction, not a deferral. The misconception that IRAs are “separate” for wash sales is false. Never replace a just-sold taxable loser inside any retirement account.

Spouse and Related-Party Accounts Count

The rule reaches across to your spouse’s accounts and to a corporation you control. A loss sale by you matched by a purchase in your spouse’s account inside the window is still a wash sale. The IRS treats married couples as a single economic unit here.

The consequence is a disallowed loss you may not see on either 1099-B, since brokers do not link spouses. Coordinate trades with your spouse around any loss harvest, and keep a shared log.

Multiple Brokers and Accounts

Brokers track wash sales only per account and per CUSIP, so cross-account washes never appear on a single 1099-B, as E*TRADE explains. You are still legally responsible for catching them.

The consequence of ignoring this is an understated wash sale and an inaccurate Schedule D. Consolidate every 1099-B and use tax software or a tracking service if you trade in several accounts.

Crypto Is Currently Outside the Rule

For tax year 2025, the IRS classifies cryptocurrency as property, not a “stock or security,” so the wash sale rule does not apply to crypto, per IRS Notice 2014-21. You can sell Bitcoin at a loss and rebuy it immediately and still claim the loss.

This is unsettled territory. Congress has repeatedly proposed extending the wash sale rule to digital assets, and a change could take effect in a future year. The consequence of assuming permanence is risk, so confirm the current law each filing season before relying on a crypto loss-harvest.

The Trader’s Escape Hatch: Mark-to-Market

Active traders who qualify for Trader Tax Status can make a Section 475(f) mark-to-market election. Under mark-to-market, wash sale rules do not apply at all, because all positions are treated as sold at year-end at fair value.

The trade-off is real: gains become ordinary income (not preferential capital gains), and the election is hard to revoke. The 2025 election generally had to be filed by the prior year’s tax deadline, so timing is strict. This is the clearest fix for the phantom-gain trap, but it suits full-time traders, not casual investors — talk to a CPA before electing.

Federal vs. State Treatment

The wash sale rule is a federal rule under Section 1091. Most states that tax capital gains start from your federal adjusted gross income, so they automatically follow the federal wash sale treatment. In those states, the disallowed loss is disallowed for state purposes too.

Level	How the Wash Sale Loss Is Treated
Federal	Loss disallowed under Section 1091; deferred into replacement-share basis
Most income-tax states	Conform via federal AGI, so the same disallowance applies
No-income-tax states (e.g., Florida, Texas, Washington)	No state tax on the gain or loss, so the rule has no state effect

A few states adjust differently or do not tax investment income at all. The consequence of assuming conformity is a possible state-level error, so check your state department of revenue’s guidance. This article is educational and not a substitute for advice from a licensed CPA or tax attorney for your specific situation.

Mistakes to Avoid

• Forgetting the 30 days before the sale. The window runs both directions, so a recent purchase can wash a later loss and disallow it unexpectedly.
• Selling on December 31 to “lock in” a loss. The forward window runs into January, so an early-January rebuy disallows the loss.
• Rebuying in your IRA. This converts a deferral into a permanent lost deduction with no basis adjustment.
• Leaving dividend reinvestment on. A reinvested dividend silently triggers a wash sale on a loss you took weeks earlier.
• Ignoring your spouse’s trades. Related-party purchases count, and the disallowed loss may appear on neither 1099-B.
• Trusting one 1099-B across multiple brokers. Cross-account washes are your responsibility and will not show on a single form.
• Entering Box 1g as a negative on Form 8949. It must be positive in column (g), or your gain/loss math will be wrong.
• Assuming two index funds are always different. Same-index funds can be deemed substantially identical, disallowing the loss.

Do’s and Don’ts

Do’s

• Do wait 31 days before rebuying the same security, because that clears the entire 61-day window and preserves your loss.
• Do buy a similar-but-different asset to stay invested, since a non-identical fund keeps the loss deductible.
• Do reconcile all your 1099-B forms, because the IRS expects cross-account accuracy that brokers do not provide.
• Do track adjusted basis on replacement shares, so you recover the deferred loss and avoid overpaying later.
• Do pause auto-reinvestment around a loss sale, because DRIPs are the most common accidental trigger.

Don’ts

• Don’t rebuy a loser in your IRA, because the loss becomes permanently nondeductible.
• Don’t ignore Box 1g, since it changes the loss you can actually claim this year.
• Don’t assume crypto rules are settled, because Congress may extend the wash sale rule to digital assets.
• Don’t coordinate loss sales without checking your spouse’s account, as related-party buys trigger the rule.
• Don’t claim a disallowed loss on Schedule D, because it can trigger an IRS notice and back taxes.

Pros and Cons of How the Rule Works

Pros

• Your loss is usually preserved, because the disallowed amount rolls into the replacement-share basis.
• Your holding period carries over, which can help a later sale qualify for long-term rates.
• Brokers track most washes for you, reducing manual work for single-account investors.
• It encourages genuine repositioning, nudging you toward truly diversified replacements.
• Mark-to-market offers a clean exit, removing wash sale complexity for qualifying traders.

Cons

• Deferral can create phantom gains, taxing you now on losses you recover later.
• IRA washes are permanent, destroying the deduction entirely.
• Cross-account tracking is on you, which is error-prone for multi-broker traders.
• “Substantially identical” is vague, leaving fund swaps in a gray zone.
• Corrected 1099-B forms can force amended returns, even up to three years later.

What to Do Next

1. Find Box 1g on every 1099-B you received and total the disallowed amounts across all accounts.
2. Reconcile across brokers, IRAs, and your spouse’s accounts to catch washes no single form shows.
3. Enter each wash sale on Form 8949 with code W and the Box 1g amount as a positive number in column (g).
4. Record the adjusted cost basis of your replacement shares so you recover the deferred loss on the next sale.
5. Decide on repairs: wait 31 days, swap to a non-identical asset, or — if you are a full-time trader — discuss a Section 475 election with a CPA.
6. Watch for corrected 1099-B forms through the filing season and amend if a restated form changes your numbers.

FAQs

Why does my 1099-B show a wash sale when I lost money?

Because you rebought the same security within 30 days of selling at a loss. The IRS disallows that loss for now under Section 1091 and adds it to your replacement shares’ cost basis, so you recover it on the future sale.

Is a wash sale loss gone forever?

No. In a taxable account it is only deferred — the disallowed loss is added to the new shares’ basis and reduces your gain when you finally sell. The exception is IRA repurchases, where it is lost permanently.

What is the dollar amount in Box 1g?

It is the portion of your loss the IRS disallows this year. It always appears as a positive number that is added back to your loss, netting that part to zero deductible loss for the current tax year.

How many days do I have to wait to avoid a wash sale?

31 days. Waiting at least 31 days after the sale clears the 30-day forward window. Remember the rule also covers the 30 days before the sale, for a full 61-day window.

Does the wash sale rule apply to crypto in 2025?

No. The IRS treats cryptocurrency as property, not a security, so wash sale rules do not apply for tax year 2025. Congress has proposed changing this, so confirm the law each year.

Are wash sales tracked across my different brokers?

No. Brokers track wash sales only within a single account and CUSIP. You are legally responsible for applying the rule across all accounts, IRAs, and your spouse’s accounts.

Can buying in my IRA trigger a wash sale?

Yes. Per Revenue Ruling 2008-5, rebuying a just-sold loser in your IRA or Roth IRA disallows the loss permanently, because IRA basis is not adjusted to restore it later.

Does selling Coca-Cola and buying Pepsi cause a wash sale?

No. Different companies are not “substantially identical,” even in the same industry. A wash sale needs the same security, the same fund, or an option to buy it.

Do I still report a wash sale if my broker already listed it?

Yes. Report it on Form 8949 with code W so your return matches the 1099-B and your Schedule D totals tie out, avoiding an IRS mismatch notice.

Can dividend reinvestment cause a wash sale?

Yes. An automatic reinvested dividend that buys new shares within the 61-day window can disallow a loss you took earlier. Pausing reinvestment around a loss sale prevents it.

How do day traders avoid wash sale problems?

By electing Section 475 mark-to-market accounting. Qualifying traders treat positions as sold at year-end, so wash sale rules do not apply. Gains become ordinary income, and the election deadline is strict.

Will a corrected 1099-B force me to refile?

Possibly. Brokers can reissue 1099-B forms for up to three years. If a correction changes your wash sale numbers, you may need to amend the affected year’s Schedule D and Form 1040.

This article reflects federal rules as of June 2026 for tax year 2025. Tax law changes — confirm current figures with the IRS or a licensed tax professional before you file.