How does the wash sale rule work, and how is it reported on Form 1099-B and Form 8949?

The rule

IRC §1091(a) disallows a loss on a sale or other disposition of stock or securities when, from 30 days before to 30 days after the sale, the taxpayer acquires substantially identical stock or securities, or enters into a contract or option to acquire them. The window covers 61 days, so buying shares before the sale can trigger it too. Dealers selling in the ordinary course of business are exempt.

The new shares take a basis built from the old shares' basis (IRC §1091(d)), which in effect carries the disallowed loss into them.

What the broker reports on Form 1099-B

• Box 1g shows the wash sale loss disallowed.
• A broker must report the disallowed loss when the sale and the purchase happen in the same account and involve covered securities with the same CUSIP number. It may, but doesn't have to, report wash sales across different accounts.
• The broker increases the basis of the replacement shares by the disallowed loss it reports in box 1g.

That means a 1099-B can miss wash sales, such as when the client sold in one account and bought back in another. IRC §1091 still applies to those.

What goes on Form 8949

• Enter code W in column (f).
• Enter the nondeductible loss as a positive number in column (g).
• If the box 1g amount is wrong, enter the correct nondeductible loss in column (g). If the correct amount is less than the 1099-B shows, attach a statement explaining the difference.
• If none of the loss is a wash sale loss, enter -0- in column (g).

The Form 8949 instructions point to Publication 550 for more on wash sales involving substantially similar stock or securities.