Blog · 15 October 2026

Wash Sale Rule and Tax-Loss Harvesting: §1091 Mechanics, IRA Traps and How H.R. 10357 Would Change Crypto for US CPA Firms

By Keshav Bansal, CA

Year-end tax-loss harvesting only works if the wash sale rule does not disallow the loss. Under IRC §1091, selling stock or securities at a loss and buying the same or substantially identical position within 30 days before or after the sale—a 61-day window—blocks the current deduction. Cryptocurrency is still outside that statute today, but H.R. 10357 (the Digital Asset Tax Certainty Act), introduced September 14, 2026 and approved by the House Ways and Means Committee 38–5 on September 16, would—if enacted—extend §1091 to traded digital assets other than qualified U.S. dollar stablecoins. It is not law. For US CPA firms, clients need a securities checklist now and a clear “pending legislation” note for crypto.

How the wash sale rule works for stock and securities

Per IRS Publication 550 (2025), Wash Sales, you generally cannot deduct a loss from a sale or trade of stock or securities if, within 30 days before or after the sale, you (1) buy substantially identical stock or securities, (2) acquire them in a fully taxable trade, (3) acquire a contract or option to buy them, or (4) acquire substantially identical stock for your IRA or Roth IRA. Buying by a spouse or a corporation you control also creates a wash sale. Dealers in the ordinary course of business are carved out.

The disallowed loss is not usually erased: Pub. 550 says you add it to the cost of the replacement stock or securities (except when the replacement is acquired in an IRA or Roth IRA). That raises basis and postpones the deduction until you dispose of the new lot; the new holding period includes the holding period of the shares sold. Matching rules apply when you buy more or fewer shares than you sold—only the matched portion is washed.

Tax-loss harvesting and the $3,000 ordinary-income offset

Harvesting means realizing capital losses to offset capital gains, then—if a net loss remains—using up to $3,000 of ordinary income ($1,500 if married filing separately), with the rest carried forward indefinitely, as IRS Topic no. 409 (updated September 24, 2026) and the Schedule D instructions describe. Fairlight Accounting’s October 4, 2026 year-end guide walks the same netting order: short-term against short-term, long-term against long-term, then across categories, then the $3,000 / $1,500 ordinary-income slice. Harvesting is most valuable against short-term gains taxed at ordinary rates. Model NIIT exposure on Form 8960 when MAGI sits near the statutory thresholds—see our net investment income tax and Form 8960 guide.

Traps: substantially identical, spouse, IRA, and DRIP

• Substantially identical. Pub. 550 says facts and circumstances control. Stocks of one corporation are ordinarily not identical to another’s; convertible preferred can be identical to common when voting rights, conversion, and price behavior line up. Options and contracts to buy count. Two funds tracking the same index are often treated as substantially identical in practice; different indexes or issuers are the usual harvest swap.
• Spouse and controlled corporations. Pub. 550: if you sell and your spouse or a corporation you control buys substantially identical stock, you have a wash sale.
• IRA / Roth IRA. Pub. 550 treats an IRA or Roth purchase of substantially identical stock within the window as a wash sale. Rev. Rul. 2008-5 holds the taxable-account loss is disallowed and the individual’s basis in the IRA or Roth IRA is not increased under §1091(d)—so the tax benefit is generally lost, not merely deferred.
• DRIP and automatic buys. Dividend reinvestment and other automatic purchases are still acquisitions by purchase. A December sale followed by a late-December or early-January DRIP buy inside the 30-day-after leg can wash the loss even when the client “did nothing” manually.

Qualified-dividend holding periods and anti-abuse cases are a separate year-end thread—see our qualified dividends and SIH Partners guide.

Crypto today vs H.R. 10357 Section 301 (not law)

Section 1091 applies to stock or securities. Digital assets treated as property rather than stock or securities are generally outside the wash sale rule under current law, which is why many clients still sell crypto at a loss and rebuy quickly. That is current law, not a loophole Congress has closed yet.

H.R. 10357’s introduced text (Congress.gov / GPO) would amend §1091 so “specified assets” include stock or securities and any traded digital asset other than a qualified U.S. dollar stablecoin. Contracts and options to acquire or sell those assets would be covered; economically equivalent tokenized or wrapped assets would be treated as substantially identical. Section 301 would apply to dispositions after the date of introduction of the Act—but only if the bill becomes law. EY Tax News (September 16, 2026) confirms the Ways and Means 38–5 markup. Until enactment, plan crypto harvesting under current law and tell clients a committee vote is not a rule change. Our crypto staking rewards and Form 1099-DA article notes Section 301 in one bullet; this post is the §1091 / harvesting deep dive.

What US CPA firms should tell clients

• Map the 61-day window before December sales. Check purchases 30 days before and after every loss sale across taxable accounts, spouse accounts, and controlled entities.
• Coordinate IRAs. Do not “park” a repurchase in an IRA or Roth after a taxable loss sale—Rev. Rul. 2008-5 makes that a permanent disallowance path.
• Pause DRIPs around harvest trades. Turn off reinvestment long enough to clear the post-sale 30 days when the same CUSIP is involved.
• Keep crypto guidance bifurcated. Securities: §1091 applies. Crypto: currently exempt; H.R. 10357 Sec. 301 would change that for traded digital assets (excluding qualified USD stablecoins) only if enacted.
• Report correctly. Form 8949 / Schedule D; wash-sale basis adjustments on replacements; brokers’ Form 1099-B wash-sale codes cover only limited same-account same-CUSIP cases—clients must track cross-account and spouse purchases.

A short firm checklist

1. List planned year-end loss sales and flag any buys (including DRIP) inside ±30 days.
2. Inventory spouse and controlled-entity accounts for the same or substantially identical positions.
3. Confirm no IRA/Roth repurchase of the harvested security within the window.
4. Document replacement basis (+ disallowed loss) and tacked holding periods for washed lots.
5. For crypto clients, separate “current law” harvesting memos from “if H.R. 10357 is enacted” alerts; do not treat the Sept. 16 committee vote as effective law.

Where this fits for Tax Brew readers

Wash-sale compliance is calendar math, basis tracking and clear pending-legislation language for digital assets. If your firm needs capacity on that preparation work, outsourced tax prep and bookkeeping support for US CPA firms can help. Email info@taxbrewglobal.com.

Sources: IRC §1091; IRS Publication 550 (2025), Wash Sales; IRS Topic no. 409, Capital gains and losses (updated Sept. 24, 2026); Rev. Rul. 2008-5; H.R. 10357 (119th Cong.), Digital Asset Tax Certainty Act (introduced Sept. 14, 2026; Ways and Means ordered reported 38–5 Sept. 16, 2026)—bill text Sec. 301; Congress.gov bill page; EY Tax News 2026-1972 (Sept. 16, 2026); Fairlight Accounting (Oct. 4, 2026). H.R. 10357 is not law. General information, not tax or legal advice. Sources as of 15 October 2026.