Question: What I can't wrap my head around is why the wash sale amount is added as if it was a taxable gain if it is also added to the cost basis.
That simply means that you cannot offset a gain on other stock, 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 (60 day window).
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.
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.
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