Recent market volatility had me trying to explain wash sales to someone and I realized I wasn't completely sure about the following:
Given the sale and then re-purchase at the higher-than-sale price is a loss recorded in this case, or is it as if the original sale never happened? Or something else...
The sale may be classified as a wash sale depending on when you sell the stock that you subsequently bought. If you sell the stock in the same tax year then whether you claim the loss or apply the loss to the cost basis of the stock doesn't matter - you get the same result either way (either a loss or a smaller gain). If you don't sell the stock in the same year, the loss will just get applied to the cost basis of the stock, resulting in a smaller gain (and less tax) in the year that you do sell.
The fact that you bought at a higher price than you sold is irrelevant.
Note that a wash sale never means "the loss didn't happen". It just defers the tax deduction for the loss until you ultimately close the position. The purpose of the law is to reduce "tax loss harvesting" where you sell a position and immediately re-buy (or buy right before you sell) in order to get a tax deduction without changing your overall position.
If you sell a stock at a loss, you'll have a wash sale if you buy substantially identical stock within the 61-day wash sale period (30 days before the sale and the 30 days after the sale). This also applies to acquiring a contract or option to buy substantially identical stock.
You can incur as many wash sale violations as you like all year long but in order to deduct them on this year's taxes, you must exit all wash sale violation positions by the last trading day of the year and remain out of that security for 30 days (Non sequitur: It's two business days before the end of the year for short positions).
If you do not exit EOY, the loss will be deferred into the subsequent tax year. This can be problematic if you have large carry forward losses because unless you have Tax Trader Status, you can only deduct $3k of losses per year after you net out that year's gains and losses.
Let's put some numbers on this to make it easier to follow. We'll assume that you own one share of stock that you purchased at $100 and that you have held the stock for at least 30 days. Your cost basis is $100.
Now, on "Day 1," you sell the stock for $90. Your cost basis of this share of stock was $100, so you have a $10 loss. If you did nothing else, you would be able to deduct this $10 loss on your taxes.
However, on "Day 3," the stock price rose, and you purchased the stock at $110. If we didn't have any wash sale rules, you would have a $10 loss on your old position, and the cost basis on your new stock position would be $110. However, this does indeed trigger the wash sale rules, so you won't be able to deduct the $10 loss. But you still did indeed lose $10. Instead of deducting the loss, you get to add the loss to your cost basis. So the cost basis on your new position becomes $120 instead of $110. You don't get to deduct the $10 loss now, but you get $10 worth of free gain (or $10 of extra loss) when you eventually do sell this stock for good.