The Tax-Loss Harvest That Cost a 66-Year-Old Retiree $2,400 in Wash-Sale Penalties She Never Saw Coming

A 66-year-old retiree in Pennsylvania relied on a $1.1 million brokerage account to generate about $55,000 annually to cover the gap between Social Security and home costs. She sold $300,000 of a long-held ETF at a $90,000 loss in December to offset earlier capital gains and planned to harvest losses at year-end. Two weeks later, her IRA automatically reinvested quarterly dividends into the same ETF, buying about $9,000 of new shares. Because the wash-sale rule applies across account types, the repurchase disallowed $9,000 of the loss, reducing the tax benefit by about $2,430 this year. The disallowed amount is added to the new shares’ basis, but timing reduces compounding.

"By tax season, the mistake had erased roughly $2,400 in expected tax savings. The $90,000 Harvest That Quietly Shrank In December 2026 she sold $300,000 of a long-held Vanguard Total Stock Market ETF ( NYSEARCA:VTI | VTI Price Prediction) position at a $90,000 loss to offset gains realized earlier in the year. Two weeks later, in early January, her IRA executed its scheduled quarterly automatic dividend reinvestment in VTI, buying roughly $9,000 of new shares."

"She had forgotten DRIP was on inside the IRA. The IRS wash-sale rule under Section 1091 applies across account types, so the repurchase of a substantially identical security inside 30 days disallowed $9,000 of the $90,000 loss, or 10% of the harvest. Her marginal rate was 22% federal plus 5% Pennsylvania, or 27% combined. The full loss was worth $24,300 in tax savings; the disallowed slice cost her $2,430 this year."

"She will recover it eventually because the $9,000 is added to the new shares' basis, but the timing damage, years of lost compounding on roughly $2,400, is real. Sizing the Portfolio Behind the Mistake A wash-sale penalty hits retirees especially hard because retirees are usually investing for income, not just long-term growth. When a tax loss gets disallowed, the retiree loses a deduction that could have reduced taxes and preserved more money inside the portfolio."

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