Wash-Sale Rule

The rule exists to stop cost-free loss manufacturing: sell at a loss, claim the deduction, buy back a minute later. The window runs 30 days on both sides of the sale, and it is broader than most investors expect: dividend reinvestments and retirement-plan contributions count as purchases, a spouse’s account counts as yours, and a repurchase inside an IRA is the worst case, because Rev. Rul. 2008-5 disallows the loss with no basis adjustment anywhere, destroying it permanently. In a taxable account the disallowed loss at least folds into the replacement shares’ basis, deferring rather than erasing it.

“Substantially identical” has never been bright-lined by the IRS. Two share classes of the same fund clearly qualify; two funds tracking the same index are the gray zone practitioners avoid; funds covering the same market segment via different indexes are the standard harvest-and-swap vehicle. The tax loss harvesting calculator checks your repurchase timing against the window.