Wash Sale Rule Calculator

Formula

The formula to calculate the potential loss deferred due to the Wash Sale Rule is:

\[ LD = L \times \left(\frac{RS}{OS}\right) \]

Where:

$ LD $ is the Loss Deferred ($)
$ L $ is the Loss on the sale of the original security ($)
$ RS $ is the Number of Replacement Shares purchased within 30 days
$ OS $ is the Number of Original Shares sold

What is the Wash Sale Rule?

The Wash Sale Rule is a regulation set by the IRS that prohibits a taxpayer from claiming a loss on the sale or trade of a security if the same security is repurchased within 30 days before or after the sale. The purpose of this rule is to prevent investors from selling securities at a loss merely to claim a tax benefit and then immediately buying back the same securities. When a wash sale occurs, the loss is deferred until the replacement shares are eventually sold.

Example Calculation

Let's assume the following values:

Loss on Original Security Sale (L) = $5,000
Number of Replacement Shares Purchased (RS) = 100
Number of Original Shares Sold (OS) = 200

Using the formula to calculate the potential Loss Deferred (LD):

\[ LD = 5000 \times \left(\frac{100}{200}\right) = 5000 \times 0.5 = 2500 \text{ dollars} \]

The Potential Loss Deferred is $2,500.