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paul-j-heckman
Level 2

Wash Sale Clarification - trading the same security at intervals

Hi All - just a clarification, as the reporting I'm receiving from my broker is confusing (they say they use wash sale logic/rules).   If I have an equity X and I bought 100 shares in say October, then again I bought 100 shares of equity X in early December, but on Dec 30 i sold 100 shares of equity X, that would not be a wash sale, correct? Because I am relieving the first lot of 100 and not the second one (the second one being a sale within 30 days).  I'm trying to determine if the realized loss i took on the 100 share sale on Dec 30 would show up as an realized short term loss, which it currently does not on my broker report (i believe because I had simply purchased the same equity in early December).  But again i believe that it should because the tax lot i relieved was over 30 days before the sale (october)
8 Replies
DianeW777
Employee Tax Expert

Wash Sale Clarification - trading the same security at intervals

Yes, you do have a wash sale because you purchased the same security within 30 days before or after the sale.  Here are the rules:

 

Wash Sale Rule Defined:

  • A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar.
  • It also happens if the individual sells the security at a loss, and their spouse or a company they control buys a substantially similar security within 30 days.
  • The wash-sale rule prevents taxpayers from deducting a capital loss on the sale against the capital gain.

Affect on Cost Basis:

  • The loss that occurs on a wash sale is added to the cost basis of the shares purchased that created the wash sale.
  • When all shares are sold and there is no repurchase, that increased cost basis will be used in full and used to determine gain or loss.

As long as you are tracking the wash sales and are not using them on the tax return when you are not allowed, then you can simply enter the same cost basis as the selling price. This will  reconcile your tax return with your Form 1099-B Proceeds which is what the IRS is comparing.

 

Be sure to keep good records so that you know when to add those losses for future sales. 

paul-j-heckman
Level 2

Wash Sale Clarification - trading the same security at intervals

but just to be clear, per the below

 

"deducting a capital loss on the sale against the capital gain"

 

i don't have a capital gain here...in fact it's trading even lower today than all previous buys and sells....

 

also can you elaborate on "then you can simply enter the same cost basis as the selling price. This will  reconcile your tax return with your Form 1099-B Proceeds which is what the IRS is comparing."

DianeW777
Employee Tax Expert

Wash Sale Clarification - trading the same security at intervals

Of course - let me explain.

 

When there is no gain in the year of a wash sale, what does this mean? "deducting a capital loss on the sale against the capital gain"

  • That simply means that you cannot offset a gain, should you have one, by using your wash sale loss.
  • The wash sale loss is suspended until all the shares of that stock are disposed of without a repurchase of the same 30 days before or after the sale. 

What does it mean to say "then you can simply enter the same cost basis as the selling price".

To be sure you do not use any of the wash sale loss, by using the same cost as sales price, it maintains the integrity of the wash sale by disallowing any loss on your tax return for the current tax year.  The loss is added to your cost basis of the shares you still hold which increases the cost basis to use at the time of full disposition/sale of the wash sale stock.  This occurred for you because it was so close to the end of the year when the transactions took place.

 

Note:  It's important to keep good records because you want to take advantage when you dispose of the stock in this situation.  The broker will always know when a wash sale occurs, but they will not record or potentially know when it ends. This is completely left to you to maintain the records.

 

Please update further if necessary.

Mike9241
Level 15

Wash Sale Clarification - trading the same security at intervals

the default method for gains or losses is FIFO so the shares you sold in December were the shares bought in October. if there was a loss on them the wash sale rule would apply due to the repurchase later in December.

 

paul-j-heckman
Level 2

Wash Sale Clarification - trading the same security at intervals

even though the december buy occurred before the december sale...?

 

that's what doesn't really add up to me.  I could understand if i bought it back after the sale, but I didn't

Rick19744
Level 11

Wash Sale Clarification - trading the same security at intervals

What you are missing is the rule is not just within 30 days after the sale.

A wash sale occurs when a taxpayer sells or trades stock or securities at a loss and within 30 days before or after the sale:

Buys substantially identical stock or securities,

Acquires substantially identical stock or securities in a fully taxable trade,

Acquires a contract or option to buy substantially identical stock or securities

*A reminder that posts in a forum such as this do not constitute tax advice.*
paul-j-heckman
Level 2

Wash Sale Clarification - trading the same security at intervals

it just seems counterintuitive to me...

 

i could understand having a rule where if i sold it on Dec 31 just for tax purposes and rebought it on Jan 1, that would be a wash sale, because you clearly just sold for tax purposes and put the exposure back on

 

But if i sold the full lot after 30+ days and then didn't re-buy after, i don't see any way i have gained or arbitraged an advantage.  That exposure to the stock is gone

Rick19744
Level 11

Wash Sale Clarification - trading the same security at intervals

Unfortunately, based on your facts, you have a wash sale.

You sold stock X on December 30 at a loss.

The wash sale rules preclude a loss if you purchase the same stock (or substantially identical) within 30 days before of after the sale of stock X.  Because you have purchased another lot of stock X early December, you are within that 30 day window.

Congress wanted to avoid "harvesting losses" while still essentially owning the same stock.

Clearly within the confines of Code Section 1091.  

Unfortunately you are within the web of that statute.

 

*A reminder that posts in a forum such as this do not constitute tax advice.*
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