How to Report a Disallowed Loss Amount on Schedule D

The wash rule can trip you up when reporting stock capital gains on your income taxes.

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One aspect of reporting stock market earnings income on your taxes that can trip you up is the 30-day wash rule. Basically, any time you sell stocks or securities at a loss, you can't claim the loss on your taxes if you bought substantially identical stocks or securities within a 30-day period either before or after the sale. The rule is designed to prevent you from selling, then immediately re-buying a sliding stock with the intention of claiming a quick tax deduction. Usually, the amounts on nondeductible losses from wash sales will be reported in box 5 of the 1099-B form you get from your broker.

Step 1

Determine whether the stock sale was short-term or long-term. Short-term sales cover anything held one year or less, and long-term sales cover anything held more than one year. Begin counting the day after you purchased the stock, and include the day you sold it.

Step 2

List the transaction like you normally would on Form 8949, with short-term transactions going under line 1, and long-term transactions going under line 3. Enter a description of the stock in column (a), the dates purchased and sold in columns (b) and (c), and the sales price and cost basis in columns (d) and (e).

Step 3

Enter the code "W" in column (f) to indicate a wash sale.

Step 4

In column (g), enter the amount of the disallowed loss. Enter it as a positive number without parentheses.

Step 5

Enter your allowable loss in column (h). If the entire sale was a wash sale, enter $0. Otherwise, subtract the amount in column (e) from the amount in column (d), then reduce the loss by the amount in column (g).

Step 6

Create totals for columns (d), (e), (g) and (h) on Form 8949, then transfer the totals to the corresponding lines on Schedule D.

Tip

  • If you had a disallowed loss from a wash sale, make sure you add the loss to the cost basis of the replacement stocks. When you eventually sell the replacement stocks, you will be able to claim the loss at that time. For example, if you had a disallowed loss of $500 on XYZ stocks, and the replacement XYZ stocks cost you $5,000, your new cost basis will be $5,500. If you sell the stocks next year for $6,000, you will have to report a gain of only $500.

Photo Credits

  • Ryan McVay/Photodisc/Getty Images

About the Author

Alan Sembera began writing for local newspapers in Texas and Louisiana. His professional career includes stints as a computer tech, information editor and income tax preparer. Sembera now writes full time about business and technology. He holds a Bachelor of Arts in journalism from Texas A&M University.

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