Wash Sale and Superficial Loss Rules: US and Canada Explained

If you sell a stock at a loss and buy the same stock back within 30 days before or after the sale, the US wash sale rule and Canada’s superficial loss rule generally stop you from deducting that loss right away. In both countries the loss is usually not lost forever: it is added to the cost of the replacement shares, so you get the benefit later, when you sell those shares for good.

In short: both rules exist to stop people from selling a stock purely to claim a tax loss while keeping essentially the same investment. The US rule (described in IRS Publication 550) applies when you, your spouse, or a corporation you control buys substantially identical stock in the 61-day window around a loss sale. The Canadian rule (Income Tax Act section 54, explained in the CRA’s guide T4037) applies when you or an affiliated person acquires identical property in the same window and still holds it 30 days after the sale. The disallowed loss is added to the cost basis or adjusted cost base (ACB) of the new shares in most cases, but not when the repurchase happens inside a retirement account.

Why these rules exist

A capital loss is useful for tax purposes. In both countries, it can offset capital gains, so selling a losing position before year-end to reduce your tax bill, tax-loss selling, is legal and common. The basics of how gains and losses are taxed are in how stocks are taxed in the US and how stocks are taxed in Canada.

Without a rule like this, you could sell a stock on December 30, book the loss, buy it back on December 31, and end up in exactly the same economic position with a lower tax bill. Both the IRS and the CRA treat that kind of loss as artificial.

The 61-day window

Both rules use a window of 30 days before the sale, the day of the sale, and 30 days after: 61 days in total.

Suppose you sell at a loss on March 15:

• The window opens on February 13 (30 days before).
• It closes on April 14 (30 days after).

A purchase of the same stock on any day in that range can trigger the rule. Note that it looks backwards too: buying more shares a week before you sell your original lot at a loss can trigger it.

The US wash sale rule

What triggers it

IRS Publication 550 (2025 edition, for 2025 returns) says 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:

1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your IRA or Roth IRA.

It is also a wash sale if you sell and your spouse or a corporation you control buys substantially identical stock in the window.

What happens to the loss

You cannot deduct the loss on the sale. Instead, Publication 550 says to add the disallowed loss to the cost of the new shares. That raises your basis, so the loss is deferred until you sell the new shares outside a wash sale. Your holding period for the new shares also includes the holding period of the shares you sold, which can matter for whether a later gain is short-term or long-term.

The exception is item 4: when the replacement shares are bought in an IRA or Roth IRA, the basis adjustment does not apply. The IRS confirmed in Revenue Ruling 2008-5 that the loss is disallowed and the IRA’s basis is not increased, so the loss is effectively gone for good. Retirement accounts are covered in US retirement accounts explained.

Worked example 1: a simple wash sale

This follows the example in Publication 550.

• You buy 100 shares of a stock for $1,000.
• You sell them for $750, a $250 loss.
• Within 30 days you buy 100 shares of the same stock for $800.

Your $250 loss is disallowed. Your basis in the new shares is $800 + $250 = $1,050. If you later sell those shares for $1,100, outside any new wash sale, your gain is $1,100 - $1,050 = $50, not $300. The $250 loss was not lost; it reduced your later gain.

Worked example 2: buying back fewer shares

If you buy back fewer shares than you sold, only part of the loss is disallowed. Publication 550 matches shares bought in the window with shares sold, in the order you bought them.

• You own 100 shares with a basis of $5,000 ($50 each).
• You sell all 100 for $4,000 ($40 each), a $1,000 loss ($10 per share).
• Within the window, you buy 75 shares at $42.

Loss on 75 shares is disallowed: 75 × $10 = $750, added to the basis of the 75 new shares. Their basis becomes 75 × $42 + $750 = $3,150 + $750 = $3,900 ($52 per share). The loss on the other 25 shares, $250, is deductible now.

Worked example 3: the year-end trap

You sell at a loss on December 20 and buy the same stock back on January 8. That is 19 days later, so it is a wash sale even though the two trades fall in different tax years. The loss cannot be claimed on the earlier year’s return; it moves into the basis of the January shares.

What “substantially identical” means

The IRS does not give a precise list. Publication 550 says you must consider all the facts and circumstances, and that ordinarily, stock of one corporation is not substantially identical to stock of another. Bonds or preferred shares of a company are usually not substantially identical to its common shares, unless they are convertible and trade in line with the common stock.

Grey areas include two different ETFs that track the same index. The IRS has not issued specific guidance on whether funds from different issuers tracking the same index are substantially identical. Many investors avoid the question by switching to a fund that tracks a different index during the window, but that is a judgment call, not a safe harbour.

Things that also count

• Options. Buying a call option on the same stock in the window counts, and the wash sale rules also apply to losses on options themselves.
• Dividend reinvestment. An automatic reinvestment that buys a few shares within 30 days of a loss sale can trigger a partial wash sale on those shares.
• Other accounts. The rule applies across all your accounts, at different brokers, and your spouse’s.

How it is reported

Your broker reports sales on Form 1099-B. Box 1g shows any wash sale loss disallowed, but brokers generally only track wash sales for identical securities within the same account. If the replacement purchase was in another account, at another broker, or by your spouse, you have to make the adjustment yourself. Wash sale adjustments are reported on Form 8949 with adjustment code W.

Canada’s superficial loss rule

What triggers it

The CRA’s guide T4037, Capital Gains, says a superficial loss can occur when you dispose of capital property at a loss and both of these conditions are met:

1. You, or a person affiliated with you, buy, or have a right to buy, the same or identical property (the substituted property) during the period starting 30 calendar days before the sale and ending 30 calendar days after it.
2. You, or a person affiliated with you, still own, or have a right to buy, the substituted property 30 calendar days after the sale.

The second condition is a real difference from the US rule. If you buy back within the window but have sold the replacement again before day 30 ends, the loss is generally not superficial (although the second sale can raise its own questions).

Who is affiliated

T4037 gives examples of affiliated persons, including:

• You and your spouse or common-law partner.
• You and a corporation controlled by you or your spouse or common-law partner.
• A partnership and a majority-interest partner of that partnership.
• A trust and a majority-interest beneficiary of the trust, or a person affiliated with that beneficiary.

The trust category matters because RRSPs, RRIFs, and TFSAs are trusts of which you are the beneficiary. The CRA’s long-standing view is that buying the identical stock in your own registered account within the window can make the loss in your non-registered account superficial. Because registered accounts don’t track an ACB that you can use later, the loss is, in practice, permanently lost. Account types are covered in Canadian registered accounts explained.

What happens to the loss

You cannot deduct a superficial loss for the year. T4037 says that if you acquire substituted property, you can usually add the superficial loss to its ACB. That reduces your gain, or increases your loss, when you eventually sell it.

If the substituted property is acquired by your spouse or common-law partner, the loss is added to their ACB, so the tax benefit moves to them.

Worked example 4: a superficial loss in Canada

• You bought 200 shares of Maple Widgets Inc. (hypothetical) with an ACB of $10,000 ($50 each).
• On November 20 you sell all 200 for $6,000 ($30 each), a $4,000 capital loss.
• On December 5, 15 days later, you buy 200 shares again at $31, spending $6,200, and still hold them on December 20.

The $4,000 loss is superficial and is denied for the year. Your ACB for the new shares is $6,200 + $4,000 = $10,200 ($51 each). If you sell those shares in 2027 for $11,000, your capital gain is $11,000 - $10,200 = $800, rather than $4,800.

If you had waited until December 21 or later to buy back (31 days after the sale), the $4,000 loss would have been claimable for the year, assuming nobody affiliated with you bought the shares either.

Worked example 5: a partial buy-back

The superficial portion is generally proportional to the number of identical shares acquired in the window and still held at the end of it, compared with the number you sold.

• You sell 200 shares at a $4,000 loss ($20 per share).
• Within the window you buy back 50 shares and still hold them 30 days after the sale.

The superficial loss is generally 50 / 200 × $4,000 = $1,000, added to the ACB of the 50 new shares. The remaining $3,000 loss is claimable now. Partial situations with multiple purchases can get complicated, and the CRA’s guidance is worth reading closely.

Exceptions

T4037 lists situations where a loss is not superficial, including when the disposition results from becoming or ceasing to be a Canadian resident, a change in use of the property, the owner’s death, the expiry of an option, or the winding-up of a corporation.

How it is reported

Canadian brokers issue a T5008 slip showing proceeds of sales, but they do not flag superficial losses, and the cost information on a T5008 may be incomplete. You report capital gains and losses on Schedule 3 of your return and are responsible for tracking your own ACB, including superficial loss adjustments.

US and Canada side by side

	US wash sale	Canada superficial loss
Source	IRS Publication 550 (Internal Revenue Code s.1091)	CRA guide T4037 (Income Tax Act s.54)
Window	30 days before to 30 days after the sale	30 calendar days before to 30 calendar days after
What you buy	Substantially identical stock or securities, including options to buy	Identical property, or a right to buy it
Still held at end of window?	Not required	Required (held 30 days after sale)
Who counts	You, your spouse, a corporation you control	You and affiliated persons (spouse or partner, controlled corporations, certain partnerships and trusts)
Retirement accounts	IRA or Roth IRA purchase triggers it; no basis adjustment	CRA view: RRSP, RRIF, or TFSA purchase can trigger it; loss effectively lost
Loss treatment	Added to basis of new shares; holding period carries over	Added to ACB of substituted property
Broker reporting	Form 1099-B box 1g, same account only	Not flagged on T5008

What can go wrong

• Forgetting the 30 days before. Buying more shares just before selling an older losing lot triggers the rule.
• Automatic reinvestment. DRIPs and automatic fund purchases can buy small amounts in the window without you noticing.
• Your spouse’s account. A partner buying the same stock can disallow your loss in both countries.
• Registered accounts. A repurchase in an IRA, RRSP, or TFSA can turn a deferred loss into a permanent one.
• Relying on the broker’s figures. US brokers track only the same account; Canadian brokers don’t track superficial losses at all.
• Year-end timing. A purchase in early January can disallow a loss from a late-December sale.

The short version

Both the US wash sale rule and Canada’s superficial loss rule stop you claiming a tax loss if you, or someone closely tied to you, buy the same stock within 30 days before or after selling it at a loss. In most cases the loss is deferred, not destroyed: it is added to the cost of the replacement shares. Canada’s rule also requires that the replacement still be held 30 days after the sale. The biggest trap in both countries is buying the replacement in a retirement or registered account, where the loss is effectively lost for good. If you sell for a tax loss, wait at least 31 days before buying back, or hold something genuinely different in the meantime. For how the urge to sell losers interacts with behaviour, see investor behaviour mistakes.

This is general education, not tax or legal advice. Tax rules depend on your circumstances and change over time. For decisions about your own return, consult a qualified tax professional, the IRS, or the CRA directly.

Related: How stocks are taxed in the US · How stocks are taxed in Canada · US retirement accounts explained · Canadian registered accounts explained