Tax Facts

7537 / How is the sale or disposition of stock or securities in a wash sale taxed?

No special tax rules apply if an investor realizes a gain in a wash sale of stock or other securities; rather, the sale will be taxed under the rules peculiar to both the type of disposition and to the particular stock or security sold. For the taxation of gain on treasury bills, bonds and notes, and municipal bonds, see respectively Q 7626, Q 7632, and Q 7663. For taxation of gain on corporate obligations, see Q 7628 and Q 7635. For taxation of stock, see Q 7517 to Q 7522.

On the other hand, to the extent that shares of stock or securities sold are replaced in a wash sale (as defined in Q 7536), any loss realized on the stock or securities sold may not be recognized for income tax purposes and, therefore, may not be used to offset capital gains or otherwise deducted. However, if the quantity of the stock or securities sold at a loss exceeds the quantity replaced, the loss realized on the excess shares or securities may be recognized as a capital loss for income tax purposes.1

1.   IRC § 1091(b); Treas. Reg. § 1.1091-1(c); Rev. Rul. 70-231, 1970-1 CB 171.

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