Thank you for the response. Here's another scenario. Let's say an individual has $100k to his name at the beginning of 2020 and decides to learn how to trade. He day trades high volume (many trades) on the same stock everyday through the end of the year into 2021. Let's say at the end of the 2020 year he is net profit of $100k, but due to wash sale rules, his gains are 3.3 million and his losses are 3.2 million. He is forced to pay taxes on 3.3 million with a tax burden of 1.3 million, and the 3.2 million in losses would carry forward to 2021 (and indefinitely). The individual obviously cannot afford 1.3 million in taxes now having only 200k to his name. The individual is also unlikely to make 3 million in gains in the next few years to offset the losses that would carry forward. And individuals cannot carry losses backwards, so the 2021 losses could not be applied back to the 2020 gains.
Unfortunately, I am the individual. Am I misunderstanding something or is the IRS about to force someone who made money to file bankruptcy because of a silly application of the wash sale rule? I was aware of the wash sale rule but I didn't think it applied to profitable traders... I thought the point was to stop tax loss harvesting, and here I am just trying to pay taxes on the money I made and they won't let me.
