Rule Atlas
IRC § 1091: Capital Gains and the Wash Sale Rule
Under IRC § 1091 (CFP Board / IRS / SEC), capital Gains and the Wash Sale Rule establishes the authoritative rules tested on the CFP® Certification. Learn to strategically manage capital gains through tax-loss harvesting and master the critical wash sale rule to avoid costly, unforced errors for your clients. VoraPrep verifies every threshold, worked table, and practice question below against the current CFP® Certification blueprint.
Capital Gain & Loss Netting Rules
| Step | Action | Description |
|---|---|---|
| 1 | Net Short-Term | Combine all gains and losses from assets held one year or less. |
| 2 | Net Long-Term | Combine all gains and losses from assets held more than one year. |
| 3 | Net Across Types | If one category has a gain and the other a loss, net them against each other. |
| 4 | Apply Loss Limit | If a net loss remains, deduct up to $3,000 against ordinary income. |
| 5 | Carry Forward | Carry any remaining net loss forward to future tax years. |
On May 10, 2026, Kenji Tanaka sold 200 shares of TECH ETF at $120 per share, which he had originally purchased for $150 per share. On May 25, 2026, he repurchased 150 shares of the same TECH ETF for $115 per share. What is Kenji's adjusted cost basis for the 150 shares he repurchased?
Worked Example: Calculating the Impact of a Wash Sale
Scenario. Let's revisit our client, David. He wants to understand the exact financial impact of his mistake.
- Facts: On December 10, David sold 100 shares of Global Corp for $50 per share ($5,000 total), which he had originally purchased for $150 per share ($15,000 total). This created a $10,000 capital loss. On January 5 of the next year (26 days later), he bought 100 shares of Global Corp for $60 per share ($6,000 total).
- Calculation Steps: 1. Identify the Wash Sale: David repurchased the same stock within 30 days of selling it for a loss. This triggers the wash sale rule. 2. Disallow the Loss: The $10,000 capital loss he realized in December cannot be deducted on his tax return for that year. 3. Calculate the New Basis: The disallowed loss is added to the cost of the new shares. We use the formula: New Basis = Purchase Price of Replacement Shares + Disallowed Loss In David's case: New Basis = $6,000 + $10,000 = $16,000
- The tempting-but-wrong answer would be to allow David to deduct the $10,000 loss. This ignores the repurchase within 30 days, which is the key fact pattern the exam uses to test this rule. Forgetting to check for the repurchase is the most common error.
- Therefore, the new adjusted basis for the 100 shares is $16,000, or $160 per share. The holding period of the original shares also tacks onto the new shares. When David eventually sells these new shares, his gain or loss will be calculated from this higher basis, allowing him to finally recognize the deferred $10,000 loss.
Common CFP® Certification Distractors on IRC § 1091
- 1Use this framework to systematically solve any wash sale problem on the exam:
- 2Step 1. Identify the Loss Sale. Scan the transaction dates in the vignette. The first trigger is always a sale of a security for a loss.
- 3Step 2. Check the 61-Day Window. Look for any purchases of a "substantially identical" security. The key is to check the full window: 30 days before the loss sale, the day of the sale, and 30 days after the sale.
- 4Step 3. Confirm the Trigger. If a purchase of a substantially identical security occurs anywhere within that 61-day period, the wash sale rule is triggered. This applies across accounts, including a purchase in an IRA when the sale was in a taxable account.
- 5To remember the wash sale period, think 30-S-30. It's not just the 30 days after the sale; it's a 61-day window with the Sale date at its center. This helps you remember to check for purchases made before the sale, a common oversight.
Frequently Asked Questions: IRC § 1091
What is the core rule under IRC § 1091 (Capital Gains and the Wash Sale Rule)?
Under IRC § 1091 (CFP Board / IRS / SEC), capital Gains and the Wash Sale Rule establishes the authoritative rules tested on the CFP® Certification. Learn to strategically manage capital gains through tax-loss harvesting and master the critical wash sale rule to avoid costly, unforced errors for your clients. VoraPrep verifies every threshold, worked table, and practice question below against the current CFP® Certification blueprint.
How is IRC § 1091 tested on the CFP® Certification?
Use this framework to systematically solve any wash sale problem on the exam: Step 1. Identify the Loss Sale. Scan the transaction dates in the vignette. The first trigger is always a sale of a security for a loss.
Where can I practice CFP® Certification questions on Capital Gains and the Wash Sale Rule?
Test yourself instantly with the free playable CFP® Certification question on this page, or launch VoraPrep's full CFP® Certification adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cfp.