I understand. My disallowed wash sale loss started in 2022 and still ongoing. Now in 2023, I will stop trading for 31 days to close out the wash sales. For tax year 2023, can I use the realized wash sales losses to offset any stock I am selling for capital gains (long term stock which I need to sell in 2023)?
- Yes, A Wash sale is not a credit for losses, but rather is an increase in the basis, If you close the Wash Sale in 2023, the profit or loss will be based on the sale price and the adjusted Wash Sale Basis.
- Yes, you can use that loss against any Capital Gain realized in that year.
- In addition to covering the gains, you can deduct an additional $3,000. Any excess will carry forward to subsequent years.
2nd question... if I had 100k wash sale loss and only 10k gain and did not stop my wash sales then this loss is deferred to 2023. Then this means I have to pay taxes for 10k gain in 2022 (where I would not have if I had stopped my wash sales). Can anyone confirm?
- You are correct. If you have a $10k gain, regardless of if it was in the same stock or a different one, it will be taxed on your current tax return, and the Wash Sale will be deferred to next year.
For 2023, once my wash sales is stopped and recognized then 100k wash sales losses from previous year will show up on my 1099B. Then can the deferred wash sale losses can be used to offset capital gains for tax year 2023?
- As stated above, The Wash Sale increases the basis of the stock, and will be reflected when you sell the stock. Any loss incurred can be used to offset other gains.
If the deferred wash sale losses is more than capital gains, then is the difference used as capital carryover to tax year 2024?
- That's correct. The Capital Loss will carry to the next year.
- An additional $3,000 will be allocated as a deduction in the current year.
- Your Capital loss carryover will be:
- Your total loss
- Less Your gains for the year
- If not depleted, you can get $3,000 or whatever is left.
- The balance will carry forward.
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