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Capital losses generally offset capital gains. If your allowable net capital loss is larger than the annual limit, the unused amount generally carries forward. A wash sale can delay a loss deduction when you sell stock or securities at a loss and acquire substantially identical stock or securities within the 30 days before or after the sale. The disallowed loss is generally added to the basis of replacement shares, rather than deducted immediately.
Can you deduct capital losses on your taxes?
Generally, yes. Capital losses first reduce capital gains. If your net capital loss exceeds your gains, the amount you may deduct against other income is subject to an annual limit. For individual federal returns for tax year 2025, IRS Publication 550 states that the limit is the lesser of your net loss or $3,000 ($1,500 if you are married filing separately). Check the instructions for the tax year of the return you are filing, since these amounts and forms are tax-year specific. IRS Publication 550 (2025)
Unused net capital losses generally carry forward until used. The carryover calculation preserves the distinction between short-term and long-term losses; the IRS worksheet directs taxpayers to use short-term losses first when figuring the carryover. For example, Publication 544 describes a joint return with a $7,000 capital loss and no other capital transactions: $3,000 is deductible for 2025 and the remaining $4,000 carries to 2026. IRS Publication 544 (2025)
What is the wash sale rule?
For federal tax purposes, a wash sale generally occurs when you sell stock or securities at a loss and, during the 30 days before or after that sale, acquire substantially identical stock or securities. The IRS definition also covers acquiring them in a fully taxable trade, or acquiring a contract or option to buy them. The period is often described as 61 calendar days inclusive: the 30 days before the sale, the sale date, and the 30 days after. Count the days around the actual sale date; waiting a generic month is not necessarily enough.
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The standard is whether the investments are “substantially identical,” not simply whether their ticker symbols match or differ. Publication 550 provides examples and criteria for certain relationships, including stock and warrants, but it does not make every pair of securities an automatic yes or no. An ETF swap or another similar-but-not-identical investment can require fact-specific analysis.
How much of a loss is disallowed?
The IRS matches replacement shares to the shares sold by quantity. If fewer replacement shares are acquired than were sold, the rule may disallow only the loss on the matched portion. In Publication 550’s example, an investor sells 100 shares at a $1,000 loss after acquiring 75 substantially identical shares within the preceding 30 days. The loss on the 75 matched shares—$750—is disallowed; the loss on the other 25 shares—$250—is deductible. The disallowed amount is allocated to the replacement-share basis: $500 to the 50-share lot and $250 to the 25-share lot. IRS Publication 550 (2025)
Do not assume that a broker’s or investor’s intuitive lot ordering settles every case, particularly when purchases exceed the shares sold. Follow the applicable IRS matching instructions. Publication 550 also says a wash-sale loss from one block cannot be used to reduce gains on identical blocks sold the same day.
Do wash-sale losses disappear?
Usually, the disallowed loss is deferred rather than permanently lost: it generally increases the basis of the matched replacement shares. That higher basis can affect the gain or loss when those replacement shares are later disposed of. The sale date and details of the replacement lots therefore matter when tracking the adjustment.
How do you report a wash sale?
For relevant capital-asset dispositions, Form 8949 is generally used to report transactions and adjustments, with subtotals carried to Schedule D. The IRS says Form 8949 reconciles amounts reported on Forms 1099-B or 1099-S with amounts reported on the return. Use the form and instructions for the return year at issue. IRS: About Form 8949
- On Form 8949, use the appropriate part for the transaction and tax year.
- For a wash-sale adjustment, enter code “W” in column (f).
- Enter the disallowed loss as a positive adjustment in column (g), following the form instructions.
- Carry the resulting subtotals to Schedule D as directed by the applicable instructions.
Form 1099-B box 1g reports a wash-sale loss amount when the securities are covered, have the same CUSIP, and were bought in the same account. But the broker’s reporting is not a complete determination of your tax obligations: Publication 550 cautions that a loss may still be nondeductible even when it is not reported on Form 1099-B. Review transactions across the relevant accounts and acquisitions rather than treating a blank box as proof that no wash sale occurred. IRS Publication 550 (2025)
How should you think about selling an ETF and buying another?
The key question is not whether the funds have different names or tickers, but whether the new investment is substantially identical to what you sold. The IRS material cited here does not establish a universal ETF-to-ETF test or a ticker-based safe harbor. Compare the underlying investments and transaction details, and seek tax advice if the distinction is material or uncertain.
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Publication 550 covers special rules involving short sales, options, warrants, securities futures, straddles, dealers, and other cases. The ordinary example of selling long-held shares and buying replacement shares should not be applied automatically to those instruments. The publication says the rule applies to losses from sales or trades of contracts and options to acquire or sell stock or securities, but not to losses from sales or trades of commodity futures contracts and foreign currencies. Consult the relevant IRS instructions for the specific instrument and transaction.
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This article describes U.S. federal tax treatment for individual investors. State and foreign tax rules, and account-specific or related-person situations, may require separate analysis. If a large loss, complex instrument, or uncertain replacement purchase is involved, a qualified tax professional can help apply the rules to the facts.
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