You will need to manually adjust the cost basis to account for the wash sale rule. You are correct in that when losses are disallowed as they are with a wash sale, that will have the effect of increasing gains and thus, increasing tax liability. TurboTax cannot automatically adjust cost basis for wash sales. Such adjustment has to be done at the brokerage firm and entered on a 1099-B or a corrected 1099-B.
To make an adjustment to cost basis using TurboTax online, follow these steps:
- Go to Federal,
- then select Income & Expenses,
- then scroll down to Stock, Cryptocurrency, Mutual Funds, etc...
- at the Investment sales summary screen, select Add more sales,
- on the next screen, enter your information, but put a check mark in the box The cost basis is incorrect or missing on my 1099-B,
- on the next screen, don't check the box None of these apply. Just click Continue,
- on the next screen We noticed there's an issue with your cost basis... is where you can enter your adjusted cost basis.
@aweeva
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