Can a day trade not be marked as a wash sale?

[ome]

Hello! Need your help to understand wash sale for day trading.

According to the IRS, a wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days (before or after the sale date). So I would assume that if I buy a share of a company, say, on Dec 1st and then sell it on that same day (day trading) for a loss, this is already a wash sale because there were less than 30 days between the buy and the sell, regardless if I wait at least 31 days to buy that stock again. Is that right?

Well, I bough 1 put contract of a certain company in 2021 and sold it later on that same day for a loss. My broker did NOT mark this loss sale as wash sale in my 1099-B. It is true I never bought any more shares/contracts of that company since then, thus respecting the minimum 30-day rule for after the sell. However, since I day traded, I believe I did not meet the 30-day rule for before the sell and this should have been marked as a wash sale.

Is my broker wrong or is it really true that a day trade is not necessarily a wash sale as long as you wait 31 days to buy that same stock again? Really appreciate your help with this! Thank you!

[tagteam · Accepted solution]

Your broker is correct.

The critical component in your post was the fact that you closed your position and did not have an open position thereafter (within the requisite time period). Thus, the wash sale rule is inapplicable.

[ome]

Thank you so much @tagteam, very helpful! To make sure I understand the implications of your answer, let me tweak my previous example:

Let's say I buy 5000 shares of company XYZ for investment. Months later I decide to also day trade on that same company. I buy 1 call contract of that company and sell that call contract for a loss on that same day. I do not buy any more shares/contracts of that company for the next 31 days.

Is this a wash sale because the previous 5000-share investment still remains open? And if so, would I have to sell all my 5000 shares to erase the wash sale? Thank you!

[tagteam]

If the securities are considered "substantially identical", then your loss would not be recognized and the basis of your open position would be increased by the amount of the loss.