Wash Sale Rule, Including IRAs, When You Sell on Installments
The wash sale rule disallows a loss on stock or securities if you acquire substantially identical stock or securities within 30 days before or 30 days after the sale (§1091(a)). In a taxable account the loss is usually postponed. If the purchase is in your IRA or Roth IRA, the loss is gone for good (Rev. Rul. 2008-5). And a purchase in your spouse's account counts too.
Why does this belong on an installment sale site? Because a capital loss offsets installment gain only if it is on your return in that year. A loss on a brokerage statement is not a loss on the return until it survives the rules. This page explains the rules. It does not tell you what to buy, sell or when; that is a question for your investment adviser.
The rule in one paragraph
Section 1091(a) denies a deduction for a loss on stock or securities if, within a period beginning 30 days before the sale and ending 30 days after it, you acquire substantially identical stock or securities, or enter into a contract or option to acquire them. That is a 61-day window: 30 days before, the day of the sale, and 30 days after. The window runs across the new year, so an acquisition in early January can affect a loss from late December.
What happens to the loss
- In a taxable account, it is usually postponed, not destroyed. The disallowed loss is added to the basis of the replacement shares (§1091(d)), and the old holding period carries over to them (§1223(3)). You get the loss back when you dispose of the replacement shares.
- But it is not on this year's return. For a seller counting on a loss to meet a specific year's installment gain, a postponed loss can miss its year.
- If the replacement is bought in an IRA or Roth IRA, the loss is lost permanently. Rev. Rul. 2008-5 holds that the loss is disallowed and the IRA's basis is not increased, so there is nothing to recover later.
The Loss Bank, a free guide, walks through these rules with worksheets for you and your CPA. Get The Loss Bank.
Where a wash sale hides
The purchase that triggers the rule does not have to be in the same account, or made by you.
| Trigger | How the rule treats it |
|---|---|
| Another taxable account of yours | Counts. The rule looks at you, not the account. |
| Your IRA or Roth IRA | Counts, and the loss is gone for good (Rev. Rul. 2008-5). |
| Your spouse's accounts | Counts: "If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale" (IRS Pub. 550). |
| A corporation you control | Counts (same Pub. 550 rule). |
| Automatic dividend reinvestment | A reinvested dividend is an acquisition and can disallow part of the loss (§1091(b)). |
| Options and contracts to acquire | Count, even if never exercised (§1091(a)). |
| A 401(k) or other workplace plan | Rev. Rul. 2008-5 addresses IRAs and Roth IRAs. Ask your CPA how purchases in other plans are treated. |
"Substantially identical" has no bright line
The statute does not define substantially identical. Whether two securities are substantially identical is a question of facts. This page will not say where that line is for any security. Your adviser and your CPA are the ones to ask.
Brokers only see their own accounts
A broker's Form 1099-B generally reflects wash sales it can see in that account. A wash sale across two accounts, two firms, an IRA, or a spouse's account is yours to catch. Your CPA reports the adjustment on Form 8949 with code W (Form 8949 instructions).
A second disqualifier: losses to family
A loss on a sale to a related person, such as a family member or a controlled entity, is not deductible (§267(a)(1)). If any loss on your return came from a sale to a relative or related entity, flag it for your CPA.
Why this matters on an installment sale
On an installment sale, gain is reported as principal is paid (§453). Each year's gain is capital gain (or §1231 gain treated as long-term capital gain) and meets that year's capital losses dollar for dollar (§1211(b)). The payment schedule is fixed in the contract, so your CPA can see years ahead how much gain lands in each year.
The loss your return uses against one year's installment gain is what The Loss Bank calls a scoop: one scoop a year, sized to that year's payment. Only the payment schedule is shaped, to the losses your adviser and CPA project. A wash sale can quietly shrink a year's scoop:
- A postponed loss moves into the basis of replacement shares and is not available against this year's payment.
- An IRA-triggered loss never comes back at all.
- A partial wash from a dividend reinvestment trims the loss by the reinvested shares.
Illustrative example (simple, not from the book's engine): A seller's CPA expects a $40,000 capital loss on this year's return to meet $150,000 of installment gain. A purchase of substantially identical shares in the seller's IRA inside the window disallows the full $40,000. Under Rev. Rul. 2008-5, the $40,000 does not move into any basis. This year's taxable installment gain stays $150,000, and the loss is not available in any later year either.
Losses also reach the gain in a specific order. A long-term carryforward and a net short-term loss go to the 25% layer (unrecaptured §1250 gain) first, and the installment method pays that layer out first (Notice 97-59; Reg. §1.453-12). See capital loss carryforward and an installment sale.
What this does not cover
Whether, when and what to trade are investment decisions for you and your investment adviser. The rules above only decide which year a loss counts in, and whether it counts at all. A wash sale is a question of the tax return, not of strategy, and this page stops there.
Digital assets are a separate question. The text of §1091 reaches "stock or securities," and as of 2026 no enacted law extends it to digital assets treated as property (Notice 2014-21). A token or fund share that is itself a security can be different. Ask your CPA.
A simple list for your CPA and adviser
List every account that could hold the same security:
- Your taxable accounts, at every firm
- Your IRA and Roth IRA
- Your 401(k) or other plan
- Your spouse's accounts, including retirement accounts
- Any company you control
- Any account with dividends set to reinvest
Give that list to your adviser and CPA before the installment schedule is set. To see how the schedule spreads gain across years, run the calculator.
Bottom line
A loss counts against installment gain only if it survives the wash sale rule. The 61-day window reaches your IRA, your spouse's accounts, controlled corporations and dividend reinvestment. In a taxable account the loss is usually postponed and can miss its year. In an IRA it is gone for good.
The Loss Bank, a free guide, walks through these rules with worksheets for you and your CPA. Get The Loss Bank.
Questions to ask your CPA
- Did any loss on my return come with a wash sale adjustment (Form 8949 code W)?
- Do my IRA or my spouse's accounts hold any security I realized a loss on this year?
- How are purchases in my 401(k) treated for wash sale purposes?
- Is any loss on my return from a sale to a related party?
- Which year's installment gain will each loss meet?
For your CPA: §1091(a), (b), (d); §1223(3); Rev. Rul. 2008-5, 2008-3 I.R.B. (IRA or Roth IRA purchase: loss disallowed, IRA basis not increased); IRS Pub. 550, Wash Sales (spouse or controlled corporation); Form 8949 instructions (code W); §267(a)(1); §1211(b); Notice 97-59; Reg. §1.453-12(a); Notice 2014-21.
Run your own numbers. Compare a cash sale, seller financing and a structured installment sale side by side, free.
Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.