How to Report a Wash Sale on Schedule D

A wash sale occurs when an investor sells a stock or security at a loss, then purchases the same substantially identical investment within 30 days or less. Under IRS rules, investors cannot deduct the loss, but they still must disclose it on Schedule D. The wash rule applies to options, warrants and contracts to purchase replacement stocks. Investors who don’t report their wash sales risk incurring IRS penalties.

Step 1

Review your brokerage account statements for trades that have closed with a loss during the year. Check to see if you purchased the exact same securities 30 days before or after the trade loss date. If so, you have a trade that classifies as a wash and must be reported to the IRS.

Step 2

Go to the IRS website and download Schedule D and Form 8949. Starting with Form 8949, enter your name and Social Security number at the top of the form. On the line below, check the appropriate box as to whether the transaction was reported to the IRS with or without the basis.

Step 3

Move down to Part 1 -- Short-Term Capital Gaines and Losses -- on Form 8949. Enter a description of the property and the number of shares purchased. For example, you might say "100 shares of ABC stock." Enter “W” in column B to denote it as a wash sale. In column C, use the information on your brokerage statement to enter the month, day and year you purchased the investment. In column D, enter the month, day and year you sold it. In column E, enter the sales price. In column F, enter the cost or other basis of the property.

Step 4

Enter the total amount of columns D and E on line 2 at the bottom of the page. Transfer this information to Schedule D. Be sure the line you select on Schedule D corresponds to the box you checked on Schedule 8949. Enter the information on the appropriate line, and on Line 7, column H, as a negative. File Schedule D and Form 8949 along with your completed 1040.

Items you will need

  • Schedule D, Capital Gaines and Losses
  • Form 8949, Sales and Other Dispositions of Capital Assets
  • Brokerage statement

Tip

  • Review all your brokerage statements carefully to be sure you don't overlook a wash transaction.

Warning

  • Although you cannot deduct a wash sale loss, you must report any gains you made on the trade.

Photo Credits

  • Comstock/Comstock/Getty Images

About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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