My initial reaction is that it is not a wash sale but unsure because the cost basis adjustment also includes a capital loss, which is smaller than the "ordinary gain" (which represents recaptured depreciation, thus taxed at a different rate).
However, if this is a wash sale, how do I treat the "ordinary gain?" Do I report it and pay the tax or do I allocate it to the cost basis of the replacement share and pay the tax when those shares are sold. If I defer the "ordinary gain"by adding it too the cost basis of the replacement shares do I just commingle it with the allocated capital loss/ Or do I somehow segregate it and include it in the "ordinary gain" for the replacement shares when I sell them?
