When a stock is sold at a loss, the IRS allows the loss to offset capital gains you might have, and losses in excess of your capital gains may be used to offset ordinary income up to $3,000. The exception to this is a “wash sale” (PDF).
A wash sale occurs when the same or substantially identical stock is purchased 30 days before or after the sale of such stock at a loss. In the case of a wash sale, the federal tax code does not allow current recognition of that loss. This prevents you from selling the stock, taking the deduction or using the loss to offset other capital gains, and then buying it back within the wash sale time frame to capture any future gains. The wash sale rule can also be triggered by multiple purchases on the same day if one of those tax lots is sold within 30 days for a loss.
If the incorrect lot of a security is sold, you have until settlement date to notify your Financial Advisor to correct the trade. After settlement date, the trade will stand as is.
IRS regulations state specific share designation must be made by settlement date of the closing transaction. After that time, the trade must stand as is.