How should I claim stock wash sale loss disallowed amount back in following year?

[DianeW777]

Yes. The wash sale losses are added to the cost basis of the original shares/options purchased that actually created the wash sale losses.  Included are the wash sale rules and information.

Options at different expiration dates have different symbols, so they are considered substantially identical.

The wash sale disallowed is not added to the net gain/loss rather it is adjusted and suspended so that it does not affect the total gain or loss for any pending wash sales.  The rub is that the broker only knows when a wash sale occurs, not when a wash sale no longer exists. This can spill over between two tax years.  Likewise you can have a wash sale during a tax year, and then fully dispose of the stock in the same year which would eliminate the wash sale rule for the final sale of the same stock.

It's up to you to know when you no longer have to consider the wash sale rule. 

Example: 

X bought 5 shares of ZZZ stock, at $5 per share, then sold it for $3 per share, however immediately before the original 3 shares were sold, X bought another 5 shares at $5.00 per share.  

     $25 for the first block of shares

       15 is the proceeds creating a $5 loss 

The $5 loss is now added to the cost of the new shares for an overall cost basis of $30.  

Once the second block of shares is sold (5 shares with cost basis of $30) without any repurchase with in the 60 day window (30 days before or 30 days after the sale), and if they are sold at a loss, then no wash sale exists on the sale, and a loss is allowed.

[Diane3]

Does it matter if they're puts or calls or sell to close or expired? Is it possible they're not wash sales as wash sales are not indicated on my 1099-B? If they are indeed wash sales can you please tell me to which lot I carryover my disallowed losses to?

XYZ

purchased   quantity   sold      gain/loss

6/12                1              6/12      $39

various            2             6/19      $-119

6/23                1              6/23      $4

6/24                1              6/24      $9

6/24                1              6/26      $-14

6/29                1              6/30      $15

all sold, never repurchased again.

Would I report line 2 on 8949 as W, then add 1/2 the loss amount to the basis of line 3 and 1/2 to line 4 and report those as B on 8949, then line 5 report as W on 8949 and add that loss to the basis of line 6 and report it's code as B on 8949?

another scenario...

1. 6/5      1      6/10      $91
2. 6/10    1      6/19      $-85
3. 6/11    1      6/19      $-64

all sold, never repurchased

In this instance even though both line 2 and 3 would be wash sales, since I closed out of the position do I not report line 3 as a wash and add the loss of line 2 to it's basis and report it as B?

Please help...I am running out of time! Thank you for your expertise!

[Diane3]

Does it matter if they're puts or calls or sell to close or expired? Is it possible they're not wash sales as wash sales are not indicated on my 1099-B? If they are indeed wash sales can you please tell me to which lot I carryover my disallowed losses to?

XYZ

purchased   quantity   sold      gain/loss

6/12                1              6/12      $39

various            2             6/19      $-119

6/23                1              6/23      $4

6/24                1              6/24      $9

6/24                1              6/26      $-14

6/29                1              6/30      $15

all sold, never repurchased again.

Would I report line 2 on 8949 as W, then add 1/2 the loss amount to the basis of line 3 and 1/2 to line 4 and report those as B on 8949, then line 5 report as W on 8949 and add that loss to the basis of line 6 and report it's code as B on 8949?

another scenario...

1. 6/5      1      6/10      $91
2. 6/10    1      6/19      $-85
3. 6/11    1      6/19      $-64

all sold, never repurchased

In this instance even though both line 2 and 3 would be wash sales, since I closed out of the position do I not report line 3 as a wash and add the loss of line 2 to it's basis and report it as B?

Please help...I am running out of time! Thank you for your expertise!

[DB2022]

Hi Diane,

I was hoping you could review my example here and tell me if the loss in the example can be used against my 2021 gains. I'm a little bit confused by the 60 day window below.

Example

You purchase 100 shares of stock XYZ on December 6, 2021 for $5/share ($500). You sell the 100 shares of stock XYZ the same day, December 6, 2021 for $9/share ($900), realizing a gain of $400.

You purchase 100 shares of stock XYZ on December 15, 2021 for $10/share ($1,000). You sell the 100 shares of stock XYZ the same day, December 15, 2021 for $9/share ($900), taking a loss of $100. My understanding is that if I repurchase stock XYZ within 30 days of this sale, I will trigger the wash-sale rule and my $100 loss will be suspended and added to the basis of the new stock.

On December 16, 2021, you again purchase 100 shares of stock XYZ this time for $7/share ($700). My understanding is that the basis of this position is $800 (December 16 purchase price + $100 loss from December 15). That same day, December 16, 2021, you sell all 100 shares for $1/share ($100), taking a loss of $700, which is the $100 loss from the December 15 sale + the loss from the December 16 sale.

Assuming I never purchase stock XYZ again, can I use the$700 loss to offset the $400 gain from the December 6 sale? Or do I pay taxes on the $400 gain and have reported on my 1099-B for the 2021 Tax Year $700 as, "wash sale disallowed"?

[Diane3]

I believe you are correct in that your final wash sale is allowed assuming you didn't purchase more XYZ by January 16 (within 30 days after your previous transaction). If that is true, you can claim your $700 loss, which will offset the $400 previous gain...but you probably meant to ask the expert, DianeW777. (I, Diane3, had asked a question under her response!)

[DB2022]

You're right, thank you for the response!

[DB2022]

Hi @DianeW777,

I was hoping you could review my example here and tell me if the loss in the example can be used against my 2021 gains. I'm a little bit confused by the 60 day window below.

Example

You purchase 100 shares of stock XYZ on December 6, 2021 for $5/share ($500). You sell the 100 shares of stock XYZ the same day, December 6, 2021 for $9/share ($900), realizing a gain of $400.

You purchase 100 shares of stock XYZ on December 15, 2021 for $10/share ($1,000). You sell the 100 shares of stock XYZ the same day, December 15, 2021 for $9/share ($900), taking a loss of $100. My understanding is that if I repurchase stock XYZ within 30 days of this sale, I will trigger the wash-sale rule and my $100 loss will be suspended and added to the basis of the new stock.

On December 16, 2021, you again purchase 100 shares of stock XYZ this time for $7/share ($700). My understanding is that the basis of this position is $800 (December 16 purchase price + $100 loss from December 15). That same day, December 16, 2021, you sell all 100 shares for $1/share ($100), taking a loss of $700, which is the $100 loss from the December 15 sale + the loss from the December 16 sale.

Assuming I never purchase stock XYZ again, can I use the$700 loss to offset the $400 gain from the December 6 sale? Or do I pay taxes on the $400 gain and have reported on my 1099-B for the 2021 Tax Year $700 as, "wash sale disallowed"?

[DianeW777]

Yes, you will take the full amount of the loss at the time of final sale since you did not repurchase the same stock within 30 days.   Use your cost basis immediately before the final sale and then enter the selling price to arrive at your allowed loss.

@DB2022

Wash sale rules apply to stocks, bonds, mutual funds, exchange-traded funds, and options sold in a taxable account.

[DB2022]

Thank you for the quick response!

[DB2022]

@DianeW777 

One follow up question, does it matter how many transactions occurred before the final transaction on December 16, 2021? What if prior to December 16, I day traded stock XYZ 100 times with 50 of the trades being profitable and 50 trades being losses. Will this final sale on December 16, 2021 have a cost basis that has been adjusted for each trade, which would mean I would be able to realize the losses from the 50 prior losing trades?

[DianeW777]

Yes you can realize the combined total loss if that is the end result.

No, the number of transactions is not applicable.  It can cross tax years and the wash sale rules end when the stock is finally completely disposed of without a repurchase in the 60 window (30 days before and 30 days after the sale).

@DB2022

[DB2022]

Sorry @DianeW777 but I'm confused about this statement, "the wash sale rules end when the stock is finally completely disposed of without a repurchase in the 60 window (30 days before and 30 days after the sale)." Specifically, I'm confused about the "30 days before" part.

In my last example with 100 consecutive trades in stock XYZ that ended with 50 profitable trades and 50 losing trades, I understood that once I closed out stock XYZ (my 100th trade) on December 16, 2021, my cost basis would be adjusted in a way so I am getting the benefit of the 50 losing trades in 2021. In other words, I can write off all 50 losing trades against the 50 profitable trades. This of course is assuming I didn't buy stock XYZ after December 16, 2021. I guess my confusion lies in the fact that if you look at all of those trades, there are repurchases "30 days" before that 100th trade of stock XYZ. With that 100th trade on December 16, 2021, there are 99 trades that happened prior to it in a 30 day window. Does this not matter?

[DianeW777]

The rule is that if you have a loss on the disposition of stock, you cannot purchase the same stock within 30 days before this sale or within 30 days after this sale.  This creates the wash sale rule. Since you disposed of all of the like stock, this is no longer a concern. You simply report the combined wash sale basis and the sale price for the last sale.

Yes, you are correct in your example.  You will now take advantage of the combined cost basis (adding any past unused wash sale losses to the cost basis creating an accumulative basis). So as long as this is the final sale without any repurchase it doesn't matter how many trades there were before the December 16, 2021 sale.

@DB2022 

[DB2022]

Beyond helpful, @DianeW777 

Thank you!

[Dan415]

I worked for 2 big name IT consulting firms and 1 big name bank. The job of my team was to fix the always messed up billing and accounting systems at various client companies, as well as to fix the billing / accounting of interest rates / finance charges / fee calculations / penalties charged to credit card customers / loan customers of this very large bank.

Many of these calculations are very complicated to code into software, and even after extensive testing, people find errors. Then when it seems that everything is working, if the rules or regulations change, everything is broken again.

At the large bank, it was so complex that at any given time, more than 2 million accounts out of 6.5 million were always getting overcharged or billed improperly. We would do our best to fix those accounts, but we never got them all. The bank just waited for people to notice and call customer service to complain and then try to fix the accounts one by one. It’s very likely that you have been a part of a Class Action Settlement with one of these companies and received some sort of check.

So what are the chances that your 1099B is incorrect? Actually quite high. I get amended 1099s all the time, and have had to personally call in several times when I noticed errors to get the 1099s fixed. In 2019 I got 3 versions of my 1099B from Etrade - the original and 2 amended…

The IRS could care less about this problem getting fixed. There can only be an overpayment of taxes as a result of this, never an underpayment of taxes.