Understanding Wash Sales on Your 1099-B
The "Wash Sale Loss Disallowed" column on your 1099-B confuses a lot of investors. Here's what it means and why it matters.
The Wash Sale Rule in 30 Seconds
If you sell a security at a loss and buy a substantially identical security within 30 days before or after the sale, the IRS disallows the loss deduction. That disallowed amount is the "wash sale loss" on your 1099-B.
The disallowed loss isn't gone forever — it gets added to the cost basis of the replacement shares. But for the current tax year, you can't deduct it.
How It Appears on Your 1099-B
Your broker reports wash sales in a dedicated column, usually labeled:
- "Wash Sale Loss Disallowed" (Schwab, Fidelity)
- "Wash Sale Adj" (TD Ameritrade)
- "W" column with a dollar amount (various brokers)
For example:
| Security | Proceeds | Cost Basis | Gain/Loss | Wash Sale |
|---|---|---|---|---|
| AAPL | $5,000 | $5,500 | -$500 | $500 |
This means you sold AAPL at a $500 loss, but the entire loss is disallowed because you bought AAPL again within the 30-day window.
Common Wash Sale Scenarios
Active traders trigger wash sales constantly. If you buy and sell the same stock multiple times in a month, almost every losing trade could be a wash sale.
Dividend reinvestment (DRIP) is a sneaky trigger. If you sell a stock at a loss but your DRIP bought shares within 30 days, that's a wash sale.
ETFs and mutual funds can trigger wash sales too, if the IRS considers them "substantially identical." Selling an S&P 500 ETF at a loss and buying a different S&P 500 ETF could be challenged.
Why Accuracy Matters
If you don't report wash sales correctly:
- You could over-deduct losses, leading to an IRS notice and penalties
- Your cost basis on replacement shares will be wrong, causing problems when you eventually sell them
- You might miss legitimate losses that aren't actually wash sales
How 1099-B Converter Handles Wash Sales
When you upload your 1099-B PDF, our extraction specifically looks for wash sale amounts. They're included in:
- The CSV as a dedicated column
- The TXF file as an adjustment line
- The Excel file with clear labeling
This means your tax software gets the correct wash sale data automatically — no manual adjustments needed.