Yes, any losses associated with wash sales during the year must be added to the cost basis of the stock involved in the wash sale. For this reason those losses are not allowed to offset other gains and therefore increases your taxable capital gain.
Once the stock is completely disposed of, that stepped up basis will be used against the selling price.
Depending on your taxable income the rate is graduated for the IRS. Because all of your sales are short term, the gain will be taxed at your ordinary income tax rates. You can see the rate schedules for 2020 at this link: 2020 Federal Tax Brackets
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 increase the cost basis with the unallowed losses.
Be sure to keep good records so that you know when to add those losses for future sales.
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