Is my option Loss is a wash sale loss?

[lyonTX]

I sold one XYZ put option on Sep 8 to collect $300 then I closed it on Sep 11 by bought it back with $1000. So the total loss is 800. The put option I sold has expiration date of Sep 18. 

My question is does wash sale rules apply to put option which will be expired in less than 30 days?

Is my option loss is a wash sale loss which can not be deducted from capital gain?

thanks

[JohnB5677]

Yes, an expiring option can result in a wash sale. 

A wash sale will occur if you "close" a position at a loss, and reinvest in the underlying stock, or a derivative (option) within 31 days.

You are correct that a Wash Sale loss is not deductible at the time of the loss.  However, it is not totally lost.

• If you sold 100 XYZ Option for $300, and re-purchased at $1,000 you have a $700 loss.
• If you then purchased 100 XYZ stock for $10,000 within 31 days it would result in a wash sale.
• The $700 loss then becomes part of the XYZ purchase.
• The adjusted basis is then $10,700
• When you sell XYZ stock you will get the benefit of the $700 wash sale loss.

[lyonTX]

@JohnB5677 

Thanks for your reply. 

This is the IRS definition about wash sale. "A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar."

According to your explanation, sounds like we can't use "Sale" as the action to trigger the loss. Instead, the loss is calculated at the moment of "close" the transaction. 

If I didn't reinvest the underlying stock or option within 31 days, above loss is not a wash sale. Is my understanding correct?

If I did reinvest the underlying stock or option within 31 days, then above loss will be added in the cost base of my 2nd investment. If I close my 2nd investment at the same year of 1st investment, the 1st investment loss can still benefit my capital loss. 

However if I don't close my 2nd investment, then I can not claim my 1st investment loss as a capital loss this year. Instead, the cost base of 2nd investment will be adjusted by adding the loss of the 1st one in the future when it is closed.

Could you let me know if my understanding is correct?

[DianeW777]

Yes, you seem to understand the process based on your example..  The wash sale rules are triggered when you sell if a repurchase has occurred within the 60 day limit (30 days before or 30 days after).

The broker statement is confirming you had a wash sale transaction, they do not necessarily know when the stock creating the wash sale has been fully disposed of without repurchase.  This is where you must have the details to know when to add the loss to the basis of the stock when it is fully disposed of without repurchase (includes options).

Apply (add) the wash sale loss to the cost basis of the stock or option once you fully dispose of it without repurchase within the limits.