Commentary · Tax Strategy
The Harvest Is Easy. The Window Is Not.
Written by the William Allan team · Published
Tax-loss harvesting has a clean reputation.
Sell something below what you paid. Use the loss against gains you have already taken, or gains you are about to take. If losses remain, up to $3,000 can offset ordinary income for the year ($1,500 if married filing separately). The rest carries forward. The IRS says that much plainly.
The reputation is not wrong. It is incomplete.
The part that decides whether the harvest works is not the sale. It is the window around it.
What the wash-sale rule is
If you sell stock or securities at a loss, and within 30 days before or after that sale you acquire the same, or substantially identical, stock or securities, the loss is generally disallowed. That is the wash-sale rule. The span is not 30 days. It is 30 days before, the sale day, and 30 days after.
Congress did not want a deduction for a loss you did not really take, because you were still in the same position.
In a taxable account, a disallowed loss usually does not vanish. It is deferred into the basis of the replacement shares. You get it later, when those shares are sold. Inconvenient. Not permanent.
There is a version that is permanent.
The version that deletes the loss
If you sell at a loss in a taxable account, and an IRA or Roth IRA acquires substantially identical stock or securities inside that window, the loss is disallowed and the IRA’s basis is not increased by that amount. That is Rev. Rul. 2008-5. The loss does not wait for you in the IRA. It is gone.
Households that rebalance across accounts, or that let a retirement account keep buying the same fund on autopilot, walk into this without meaning to. Form 1099-B generally catches wash sales for covered securities with the same CUSIP in the same account. A purchase in a different account is often on the household to track.
What “acquire” means
The rule is not limited to an open-market click. A contract or option to acquire the same stock can count. An automatic investment into the same fund can count. Purchases and fully taxable acquisitions of substantially identical stock in the window can wash the loss, including stock received as taxable compensation.
A purchase in another account the household controls, including in some cases a spouse’s account, can also count. That is facts-based. Treat it as a risk to check, not as a side note.
None of this means harvesting is a bad idea. It means the question is not only whether the position is down. It is what else the household is about to buy, receive, or reinvest in the same name.
When September is better than December
A harvest in the last days of December still has to survive the 30 days after the sale. Those days land in January. That is a different tax year for the replacement calendar, and a crowded week for everyone else doing the same thing.
September and October leave room to take the loss and stay out of the replacement long enough for the rule to stop mattering, or to move into something similar that is not substantially identical. Waiting for a December checklist is how people miss the move or make a messy version of it.
The questions that actually decide it
- What gains have already been realized this year, and what gains are still likely.
- Which positions are below basis in taxable accounts, not inside retirement accounts where a harvest does not create a current capital loss the same way.
- What else was acquired in the previous 30 days or will be acquired in the next 30 days in the same name, across every account the household owns.
- Whether any of those accounts will buy the same security inside an IRA during the window.
- Whether the point is to stay invested in the same idea through a similar holding, or to raise cash. Those are different jobs.
If you cannot answer those yet, you are not behind. You are where most households are before anyone has laid the sale and the replacement side by side.
What we would tell a friend
If a friend asked over dinner, without the software, the honest answer would go something like this.
If this year already has gains, look at the taxable account first, not the IRA. Losses there can actually meet those gains.
If the same stock may show up again in the next month without anyone clicking Buy, put that date on the table before you sell. The calendar is part of the trade.
If any account in the house might buy the same thing in the next month, including on autopilot or inside an IRA, either pause it or pick a different replacement. The IRA version of this mistake is the expensive one.
And if you have been telling yourself you will deal with it in December, you are not wrong about the deadline for the tax year. You are wrong about the work. The deadline is December. The wash-sale window reaches back 30 days before you sell and continues for 30 days afterward.
That picture, for this year, is an afternoon. It is the sort of thing worth doing with someone whose job is to lay it out straight.
Informational purposes only. Not investment, tax, or legal advice. Tax-loss harvesting and wash-sale treatment depend on individual circumstances, account type, and current law, which can change. A loss may be disallowed if substantially identical securities are acquired within the statutory window, including in certain cases involving IRAs. William Allan does not provide tax advice. Consult a qualified tax professional regarding your situation. William Allan is an investment adviser registered with the SEC; registration does not imply any specific level of skill or training. All investing involves risk, including possible loss of principal.