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I sold 20 contracts of XYZ call option spreads at a total loss of $25,000 in a taxable account. The next day I bought 10 shares of XYZ in my HSA (oops - I hadn't realized that this counts as a wash sale). Is the $25,000 loss writeoff gone forever? Many sites say that the loss is "added to the cost basis" of the new shares. Since the HSA is not taxable, is this "increase" in cost basis then worthless?

On the one hand, this post suggests instant death: "If I sell 100 shares of XYZ for a $1000 loss in my brokerage account, and buy 100 shares of XYZ in my HSA account, I triggered a wash sale by my actions in my HSA account, and additionally I have permanently disallowed the $1000 loss." This also seems to agree with Revenue Ruling 2008-05.

On the other hand, this post says "Wash sale accounting doesn't change the amount of the gains or losses, just possibly when you can claim them." Of course, this situation would be much preferable. But which one is correct?

If the loss writeoff is gone forever... 20 contracts controls 2,000 shares. Will I lose all 2,000 shares worth of writeoff, or only 10 shares worth? This site says that the writeoff is only disallowed on the repurchased shares. Can I interpret this to mean that I can still write off 19.9 contracts worth of losses? (In which case my mistake was merely the loss of a $125 writeoff?)

If the loss writeoff is not gone forever... can I get it back any time soon (before its value is eroded by inflation)? Can I "undo" the mistake by selling the HSA shares right away?

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  • I'm not a CPA or attorney, but the 4th paragraph I believe is correct. Taking a simpler case, if I buy 100 shares, sell them all at a loss, then immediately buy 10 shares, I can take the loss on 90 shares in the tax year of the loss like normal (assuming no other transactions). Only 10 shares are a wash sale and must be handled as such. So I believe while you did forever lose the ability to declare some of your loss, it's only 10/2000th worth. In a taxable account selling the 10 shares purchased would effectively undo the wash sale, but as it's in a tax-advantaged account, it won't (IMO).
    – blm
    Oct 25, 2022 at 20:47

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I am not an accountant or a tax attorney.

Posts here on Money.SE or on Reddit are not authoritative or legal, so don't spend too much time parsing the wording on those posts that you have linked to. Revenue Ruling 2008-05, however, which you have also linked to, is a legal document. The ruling mentions IRAs and Roth IRAs, but it would seem to me that the government would rule the same way for any tax-advantaged account, such as an HSA. The ruling seems to be pretty clear that if you sold shares from your brokerage account at a loss and then repurchased inside an HSA, the loss would be disallowed under the wash sale rules, and that the loss is not added to the cost basis of the HSA shares.

I don't understand options contracts well, so I don't know how options contracts translates to actual shares when applied to the wash sale rules.

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  • That makes sense. How many shares do I need to purchase? Can I just purchase 1 share, and attach the entire loss to that 1 share? (After all, if stocks and options are "substantially identical", then, by the same "logic", 1 share of stock could be "substantially identical" to 20 options contracts. Alternately, one could point out that purchasing 1 share makes any number of previous sales into a wash sale.) Oct 25, 2022 at 4:37
  • Also, if the IRS were to rule on HSAs, when would such a ruling go into effect? Oct 25, 2022 at 4:38
  • @personal_cloud There's no "attaching losses" to a share, it's always share by share.
    – blm
    Oct 25, 2022 at 20:55

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