Does Fidelity Account for Wash Sales on Your 1099-B?

Wash sales can create complications for investors when filing taxes, as they involve repurchasing a security within 30 days of selling it at a loss. The IRS disallows these losses to prevent taxpayers from claiming artificial deductions while maintaining their investment positions.

Fidelity, like other brokers, provides tax documents such as Form 1099-B, which reports capital gains and losses. However, investors often wonder whether Fidelity accurately accounts for wash sales or if additional adjustments are necessary. Understanding how Fidelity handles these transactions is essential for accurate tax reporting.

The 30-Day Requirement

The IRS enforces a 30-day window before and after a sale to determine whether a transaction qualifies as a wash sale. This rule applies to stocks, bonds, mutual funds, ETFs, and options, preventing investors from claiming tax benefits while maintaining a substantially identical position.

For example, if an investor sells shares of a company at a loss on January 10 but repurchases the same stock on January 25, the loss is disallowed. The rule also applies if the repurchase occurs before the sale, such as buying shares on January 5 and selling at a loss on January 20.

Brokerages like Fidelity track wash sales within individual accounts, but issues arise when trades occur across multiple accounts or involve dividend reinvestment plans. If an investor sells shares in a taxable brokerage account but repurchases them in an IRA within the 30-day window, the IRS still considers it a wash sale, even if the brokerage does not report it.

Identifying Disallowed Losses

The IRS does not allow investors to deduct losses from transactions that meet the wash sale criteria. Instead, the disallowed loss is deferred and added to the cost basis of the repurchased security, postponing the tax benefit until the new position is sold under conditions that do not trigger another wash sale.

Fidelity tracks wash sales within the same account and reports them on Form 1099-B. However, investors cannot rely solely on their broker to capture every disallowed loss, especially when trades occur across multiple accounts or different financial institutions. If an investor sells a stock at a loss in their Fidelity brokerage account but repurchases it in a separate account at another firm, Fidelity will not consolidate this information. The investor must recognize and adjust for the wash sale when filing taxes.

Dividend reinvestment plans (DRIPs) and automated purchases can also trigger wash sales. If an investor reinvests dividends into the same stock, a small purchase within the 30-day window can disallow an otherwise deductible loss. This is particularly relevant for mutual funds and ETFs, where automatic reinvestments are common. Investors who actively trade or use systematic investment strategies should monitor these transactions closely.

Cost Basis Adjustments

When a wash sale occurs, the disallowed loss is incorporated into the cost basis of the repurchased security. This increases the adjusted basis, affecting future capital gains or losses when the asset is eventually sold.

For example, if an investor originally purchased shares for $5,000, sold them for $4,000, and repurchased them within 30 days, the $1,000 loss is disallowed. If the repurchase price is $4,200, the adjusted cost basis becomes $5,200 ($4,200 purchase price plus $1,000 disallowed loss). When the shares are eventually sold, capital gains or losses will be calculated using this new basis.

Tracking these adjustments can be difficult, particularly for investors with frequent trades or automated investment strategies. While Fidelity adjusts cost basis for wash sales within the same account, investors who trade across multiple platforms must manually account for these changes, as brokerages do not share cost basis information between institutions.

Reconciling on Form 1099-B

Form 1099-B reports capital gains and losses to the IRS, detailing proceeds from security sales. Fidelity includes adjustments for wash sales within the same account, but discrepancies can emerge when reconciling this information for tax filing. The form categorizes transactions based on short-term and long-term holdings and indicates whether the basis was reported to the IRS. However, it does not always reflect wash sales that occur across different brokerage accounts or tax-advantaged accounts, leaving gaps that investors must address manually.

Taxpayers using software like TurboTax or TaxAct should ensure that wash sale adjustments from their 1099-B are correctly transferred into Schedule D and Form 8949, which itemize each sale. If discrepancies exist, investors may need to maintain their own records to adjust for transactions Fidelity did not track. This is particularly relevant for those trading options, as multi-leg strategies can create wash sales that brokers may not fully reconcile on tax forms.

Reinvestment Plan Impacts

Automatic reinvestment of dividends and capital gains distributions can trigger wash sales, particularly for investors enrolled in dividend reinvestment plans (DRIPs) or mutual fund automatic purchase programs. Since these reinvestments often occur without active trading decisions, they can disallow a loss from a recent sale due to a small reinvestment within the 30-day window.

For example, if an investor sells shares of a mutual fund at a loss on June 15 but has a DRIP purchase scheduled for June 20, the IRS considers this a wash sale. The disallowed loss is then added to the cost basis of the newly acquired shares. Fidelity tracks these adjustments within the same account, but investors managing multiple accounts must ensure reinvestments in one account do not affect transactions in another.

Tracking Across Multiple Accounts

Wash sales become more complex when transactions occur across multiple brokerage accounts, including taxable accounts, retirement accounts, and accounts held with different financial institutions. Fidelity only tracks wash sales within a single account, meaning investors who buy and sell the same security across different platforms must manually account for any disallowed losses.

A common issue arises when an investor sells a stock at a loss in a taxable brokerage account but repurchases it in an IRA. The IRS still considers this a wash sale, but unlike taxable accounts where the disallowed loss is added to the cost basis of the repurchased shares, losses triggered by IRA transactions are permanently disallowed. Since brokerages do not track wash sales across different account types, investors must be diligent in reviewing their trades to ensure compliance.