Under U.S. federal tax law for the 2025 tax year, an individual sells 100 shares of publicly traded stock at a loss on November 15, 2025, and buys 100 shares of the same stock back on December 1, 2025. Under IRC Section 1091, what is the tax treatment of the loss?
- The loss is fully deductible in 2025 because more than 15 days passed between the sale and the repurchase
- The loss is disallowed for 2025 because the repurchase falls within the 30-day window before or after the sale, but the disallowed loss is added to the basis of the newly acquired shares
- The loss is disallowed permanently and can never be recovered, because the wash sale rule eliminates the loss forever
- The loss is deductible in full as long as the taxpayer waits until the following tax year to file the return
Correct answer: B. The loss is disallowed for 2025 because the repurchase falls within the 30-day window before or after the sale, but the disallowed loss is added to the basis of the newly acquired shares
IRC Section 1091 disallows a loss on the sale of stock or securities if the taxpayer acquires substantially identical stock or securities within the 61-day window beginning 30 days before and ending 30 days after the sale; buying the same stock back on December 1, 2025, sixteen days after a November 15, 2025 sale, falls inside that window, so the loss is disallowed, but it is not lost forever — it is added to the basis of the repurchased shares, deferring the benefit until those shares are later sold. The first option is wrong because 30 days, not 15, is the relevant threshold, and 16 days is still within the disallowance window. The third option is wrong because the wash sale rule defers the loss through a basis adjustment rather than eliminating it permanently. The fourth option is wrong because the timing of the disallowance depends on the 30-day acquisition window around the sale date, not on which tax year the return is filed.
Source: Internal Revenue Code Section 1091; IRS Instructions for Schedule D (Form 1040) (2025), 'Wash Sales'