A Wash Sale Usually Just Delays Your Loss. Buying It Back Inside an IRA Destroys It.

Tax loss harvesting is one of the few genuinely free things in investing: sell something that has fallen, book the loss against your gains, keep your market exposure. The wash sale rule is the constraint on it, and it is widely half-understood in a way that costs people money.

The half people know: buy it back too soon and the loss is disallowed.

The half they miss: in a taxable account, “disallowed” almost always means deferred. The loss moves into the cost basis of the replacement shares and you get it back when you sell those.^[1] Annoying, not expensive.

Except in one case, where it is expensive and permanent.

It Is 61 Days, and It Looks Backwards

Everyone calls it the 30-day rule. It is 30 days before the sale, the sale date itself, and 30 days after: a 61-day window, counted in calendar days rather than business days.^[1]

The backward half is what catches people, because it is not intuitive that a purchase you made before deciding to sell can retroactively disallow the loss. It can. If you bought more of a falling position three weeks ago, averaging down, and then sold the older lot at a loss this week, you have created a wash sale. Nothing about that sequence feels like gaming the tax code, and the rule does not care.

Why It Is Usually Only a Delay

The mechanism matters, because it is what makes the IRA case different.

When a wash sale is disallowed in a taxable account, the amount does not vanish. It is added to the cost basis of the replacement shares.^[1]Higher basis means a smaller taxable gain, or a larger loss, when you eventually sell those shares. The benefit is postponed to that later sale.

Which is why a wash sale inside one taxable account is a bookkeeping irritation rather than a disaster. You lost the timing, not the deduction.

The IRA Case, Where the Loss Actually Dies

Now sell at a loss in your taxable brokerage account and buy the substantially identical security inside your IRA or HSA within the window.

The loss is permanently forfeited.^[1]

The reason follows directly from the mechanism above. The rescue works by attaching the disallowed amount to the cost basis of the replacement shares. Shares inside an IRA or HSA have no taxable cost basis, because gains in those accounts are never taxed on sale. There is nothing for the loss to attach to, and no future event that would recover it. It is simply gone.

This is a genuinely easy mistake to make, because it does not look like one. Selling a fund in taxable and buying the same fund in your IRA feels like tidying up: same exposure, better account. It is also the one version of this rule that costs you the entire deduction.

It Follows You. Your Broker Does Not.

The rule applies across every account you control: accounts at other brokers, your retirement accounts, and your spouse's accounts.^[2]

Your broker's reporting does not. Each firm tracks wash sales within its own account and has no visibility into what you did at another broker or what your spouse did anywhere.^[2] So a cross-broker or spousal wash sale will not appear on any 1099-B, no software will warn you, and the obligation to report it is still yours.

The practical shape of the trap: harvest a loss at broker A, and your automatic monthly contribution at broker B buys the same index fund eleven days later. Two systems, each behaving correctly, and a disallowed loss nobody is tracking. This is the same seam-between-correct-components pattern that produces the $0 cost basis error on RSU sales: the reporting is accurate within its own boundary and wrong about your actual situation.

“Substantially Identical” and Where the Line Is

The same stock counts. The same fund counts. A different company generally does not, and a fund tracking a genuinely different index generally does not.^[3]

That is what makes harvesting practical: sell a fund tracking one large-cap index at a loss, buy a fund tracking a differentlarge-cap index, keep essentially the same market exposure, book the loss. You have changed the security without meaningfully changing your position.

The uncomfortable middle is two funds from different providers tracking the same index. Economically that is the same thing with a different ticker, and the IRS has never issued a bright-line rule on it. Most practitioners treat it as too close to risk, which seems right: the upside is a slightly tidier swap and the downside is an audited position you cannot defend with anything but the absence of guidance.

How To Do It Without Stepping On It

Turn off dividend reinvestment first, on that holding, in every account. This is the step people skip.

Check your other brokers and your spouse's accounts for automatic contributions or reinvestment into the same fund. Pause them for the window.

Never buy the replacement in a retirement account. If you want that exposure in your IRA, do it outside the 61-day window. This is the only version of the rule with a permanent cost.

Either wait 31 days or switch index. Waiting keeps you out of the market and exposed to a rally; switching to a different index keeps you invested. Most people should switch rather than sit out, because missing an upswing to protect a deduction is the tail wagging the dog.

Know what the loss is actually worth. Losses offset gains without limit, and then only $3,000 a year against ordinary income, with the rest carried forward. That cap has not moved since 1978, which is part of the capital gains picture and it means a very large harvested loss may take years to use.