How to Report a Wash Sale on 1099-B — Step-by-Step Tax Guide

💸 How to Report a Wash Sale on 1099-B — Step-by-Step Tax Guide (2025)

If you invest in stocks, ETFs, or options, there’s a good chance your broker has flagged at least one trade as a “wash sale loss disallowed” on Form 1099-B. That’s when many investors panic: “Did I mess up my taxes?”, “Where do I put this on Form 8949?”, “Is my loss gone forever?”.

1️⃣ What Is a Wash Sale? (Quick Definition)

A wash sale happens when you sell a stock or security at a loss and, within 30 days before or after that sale (a 61-day window), you buy the same or “substantially identical” stock or security again. In that case, the IRS says:
you can’t deduct the loss right now.

Technically, a wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

• Buy substantially identical stock or securities, or
• Acquire substantially identical stock or securities in a fully taxable trade, or
• Acquire a contract or option to buy substantially identical stock or securities, or
• Acquire substantially identical stock or securities for your IRA or Roth IRA. :contentReference[oaicite:1]{index=1}

The key point: the loss isn’t gone forever. For taxable (non-retirement) accounts,
the disallowed loss is added to the cost basis of the new shares and your holding period carries over to the replacement shares. You usually get the benefit of the loss later when you eventually sell those replacement shares. :contentReference[oaicite:2]{index=2}

2️⃣ Where Wash Sales Show Up on Form 1099-B

For most individual investors, your first encounter with a wash sale is on Form 1099-B: Proceeds From Broker and Barter Exchange Transactions.
Brokers must track wash sale adjustments for covered securities and report them to you and the IRS.

Here’s what to look for on your 1099-B:

• Adjusted cost or other basis — For covered securities, the broker typically shows cost basis after
  wash sale adjustments. That means the disallowed loss has already been added to the new basis.
• Wash sale loss disallowed — Many brokers show a separate column (sometimes Box 1g in the detail section)
  labeled “wash sale loss disallowed” or something similar, listing the amount of loss the IRS won’t let you deduct this year.
• Long-term vs. short-term — In a wash sale, the holding period of the original shares generally carries over to the replacement shares, so long-term vs. short-term treatment can change later.
• Multiple pages — If you trade actively, your broker may group transactions by short-term/long-term and covered/non-covered shares. Wash sale information can be buried inside those pages, so read carefully.

For digital assets like cryptocurrency, brokers will use Form 1099-DA for 2025 transactions and later, but the classic wash sale rule under IRC §1091 generally doesn’t apply to most digital assets (except certain tokenized securities that are treated as stock).

3️⃣ Step-by-Step: How to Report a Wash Sale on Your Tax Return

Now the key question: What do I actually do with this on my tax return?
In most cases, you will report wash sales on Form 8949 and then summarize totals on Schedule D (Form 1040). The IRS instructions specifically use adjustment code “W” for nondeductible wash sale losses.

✅ Step 1 — Identify the Wash Sale Transactions on Your 1099-B

Go through your 1099-B and mark the trades where:

• There was a loss, and
• The broker shows a wash sale loss disallowed amount, or
• The broker’s statement includes a wash sale notation in a separate column or footnote.

For covered securities, the broker has usually already:

• Added the disallowed loss to the basis of the new shares, and
• Carried over the holding period to the replacement shares.

Your job is not to redo the broker’s math — your job is to reflect it correctly on Form 8949 and Schedule D.

✅ Step 2 — Decide: Import or Manual Entry

Most tax software today can import 1099-B data directly from major brokers (Fidelity, Schwab, Robinhood, etc.).
If you import:

• The software usually pulls in the adjusted basis and wash sale amounts.
• Form 8949 is then auto-filled with code W and the adjustment in column (g), or it may use summary reporting if your statement is attached as a PDF.

If you enter trades manually, you will need to:

• Enter the description, dates acquired and sold,proceeds, and cost basis.
• Enter the disallowed wash sale loss as a positive number in column (g) and use code “W” in column (f).

✅ Step 3 — Use Code “W” and Column (g) on Form 8949

The IRS instructions for Form 8949 say:

• If you have a nondeductible loss from a wash sale, enter code “W” in column (f), and
• Enter the amount of the nondeductible loss as a positive number in column (g).

Column (g) is labeled “Adjustments to gain or loss.” A positive amount in column (g) reduces the loss (or increases the gain), which is exactly what happens when a wash sale disallows part or all of your loss.

✅ Step 4 — Carry Totals to Schedule D

After entering all your wash sale trades on Form 8949:

• Combine totals for each category (short-term covered, short-term non-covered, long-term, etc.).
• Transfer subtotals from Form 8949 to Schedule D (typically lines 1b / 2 for short-term and 8b / 9 for long-term, depending on your situation).
• Schedule D then flows into your Form 1040.

✅ Step 5 — Understand What Happens “Next Year”

A very common question: “Does a wash sale go away next year?”

For taxable accounts, the answer is usually: the disallowed loss has been rolled into the cost basis of the replacement shares.
When you later sell those replacement shares (and no new wash sale is triggered), your gain/loss on that sale should reflect the benefit of that previously disallowed loss.

In other words, the wash sale doesn’t “reset” by year — it flows through basis into future transactions.

4️⃣ Example: From 1099-B to Form 8949 (Numbers Walk-Through)

Your broker may present numbers slightly differently (especially for actively traded accounts), but the logic is the same:
disallowed loss goes into basis, not into a current-year deduction.

5️⃣ EA Tax Tips — DRIPs, IRAs, Spouses, and Crypto

6️⃣ Common Mistakes Investors Make With Wash Sales

Here are some of the most frequent mistakes I see as a tax practitioner:

• Manually overriding broker basis — Changing the broker-reported cost basis because “it looks wrong” can create mismatch with IRS records. Usually, you should start from the 1099-B as given and adjust only when you have clear documentation.
• Ignoring multiple brokerage accounts — The law applies per taxpayer, not per broker.
  But each broker generally calculates wash sales only within that account. If you bounce between two platforms, your combined trading may create wash sales that individual 1099-Bs don’t fully reflect.
• Assuming the loss is “gone forever” — In taxable accounts, the loss is usually just deferred through basis adjustment, not destroyed. The main exception is certain IRA situations, where the loss may be permanently nondeductible.
• Not checking DRIPs and automatic investing plans — Automatic purchases (401(k) brokerage window, DRIPs, robo-advisor rebalancing) can quietly trigger wash sales.
• Confusing crypto rules with stock rules — Crypto tax reporting is expanding (e.g., Form 1099-DA), but wash sale rules still primarily target stock and securities. Don’t mix rules across asset classes without checking the latest guidance.

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8️⃣ Internal Links & Reference Links

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9️⃣ Important Disclaimer

Disclaimer: This article is for general educational purposes only and is based on
U.S. federal tax law as of the 2025 filing season. State and local tax rules may be different and may change without notice. Your specific situation may require additional forms or a different approach. Please consult a qualified tax professional before making decisions based on this information.

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