Harvesting Losses Without Tripping the Wash Sale Rule
How selling losers offsets gains, the 30-day window that disallows the loss, the accounts that count, and the business-asset version of the strategy.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Tax-loss harvesting is selling a losing investment to realize a capital loss that offsets gains and up to $3,000 of ordinary income a year, with the rest carried forward. The wash sale rule disallows the loss if you buy a substantially identical security within 30 days before or after, in any account, including an IRA.
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How do losses offset income?
| Step | Rule |
|---|---|
| 1 | Short-term losses offset short-term gains; long-term losses offset long-term gains |
| 2 | Net losses in one category offset net gains in the other |
| 3 | Remaining net loss offsets up to $3,000 of ordinary income ($1,500 married filing separately) |
| 4 | The excess carries forward indefinitely, keeping its character |
Because short-term gains are taxed at ordinary rates, harvesting against them is worth the most.
What is a wash sale?
A sale at a loss where, within the 61-day window centered on the sale date, you acquire the same security, a substantially identical one, or an option to buy it. The disallowed loss is not lost: it is added to the basis of the replacement shares, and the holding period carries over. Buying the replacement in an IRA permanently loses the loss, since there is no basis to adjust.
Replacing an index fund with a different fund tracking a different index — or the same sector through a different index — is the usual way to stay invested while harvesting.
What counts as substantially identical?
Shares of the same company, options on them, and generally two funds tracking the same index. Shares of different companies in the same industry, or bonds of the same issuer with different terms, are not. Cryptocurrency is not currently subject to the wash sale rule, because it is property rather than stock or securities. The 2025 tax law did not change that, but a bill approved by the House Ways and Means Committee on September 16, 2026 (H.R. 10357) would extend the rule to widely traded digital assets; it has not been enacted.
How does it apply to business owners?
- Investment portfolios held personally follow the rules above; harvesting in a year with a large business sale can absorb part of the gain.
- Business assets are different. Selling equipment or property used in the business at a loss produces an ordinary loss under Section 1231 after netting, not a capital loss, and the wash sale rule does not apply. Disposing of obsolete assets before year end is a legitimate deduction.
- Worthless securities and bad debts have their own rules and are deductible in the year they become worthless.
When does harvesting not help?
When the replacement's new holding period would turn a later gain short-term, when transaction costs exceed the tax saved, or when the replacement asset does not fit the portfolio. Harvesting defers tax rather than eliminating it: the lower basis in the replacement means a larger gain later, unless the position is held until death and receives a stepped-up basis.
Frequently asked questions
Does a loss on a stock sold in December and rebought in January count?
Not if the repurchase is within 30 days of the sale. Count the days.
Does the rule apply if my spouse buys the same stock?
Yes. Purchases by a spouse or a corporation you control are treated as yours.
Can I harvest gains instead?
Yes. In a low-income year, selling appreciated assets to use the 0 percent capital gains bracket and immediately rebuying resets basis higher; there is no wash sale rule for gains.
How are harvested losses reported?
On Form 8949 and Schedule D, with code W for a disallowed wash sale loss. Brokers report wash sales on Form 1099-B only for covered securities repurchased with the same CUSIP in the same account; you must track the rest yourself.
Official sources
The IRS explains: “If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.” — Internal Revenue Service, Publication 550 (2025), Investment Income and Expenses, https://www.irs.gov/publications/p550
The IRS explains: “If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses.” — Internal Revenue Service, Topic no. 409, Capital gains and losses, https://www.irs.gov/taxtopics/tc409
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