Navigating wash sales that includes closed position

[therailsguy]

Hi,

I have a question related to wash sales, and how I may rectify my situation to offset the wash sales, and make them count as losses.

As per my realized gain/loss document from my broker, in 2021, I have made $300,000 in short term capital gains. However, I have also caused wash sales that amount to $275,000. These wash sales happened from January to August this year. The wash sales and the units of stocks associated are shown below:

Ticker	Units
AGCB	10000
AI	1000
API	5000
CPNG	5000
FROG	3000
OPEN	2000
PLTR	2000
VVOS	5000

As it stands, I have exited all positions on the following stocks:

• AI
• AGCB
• FROG
• OPEN
• VVOS

Per my understanding, the losses on wash sales are deferred, they do not completely disappear. Instead, they are added to the cost basis of the replacement share purchase.

A few questions:

• Tomorrow, If I were to repurchase the stocks that were involved in wash sale, hold them for 31 days, and sell them, would be able to recover from all the wash sale?
• How many units of stocks do I need to purchase for each ticker? Does it need to be the same as the number of stocks that were involved in the wash sale?
• For the positions that I have closed, the last sale is still wash sale for some of the stocks. Are these special cases that need to be handled in a certain way?

I have learnt a lot by being a reckless trade. I hope someone can help me get some clarity around the situation

Thank you so much in advance.

[rjs]

The term "replacement shares" might be a bit misleading. The shares that are considered replacement shares could be purchased before or after the sale.

You don't have to purchase more stock in order to use the disallowed loss from the wash sale. The fact that a sale was identified as a wash sale means that you already purchased replacement shares. The disallowed loss is added to the basis of the replacement shares. You get the benefit of the loss when you sell the replacement shares.

When you say that you closed a position, I assume you mean that you sold all the shares you owned of a particular stock, and did not purchase any more shares of that same stock for at least 30 days after the sale. In that case, the wash sale doesn't matter. You have already gotten the benefit of the loss because you have sold the replacement shares. The loss just gets transferred to a different sale. If that's what you did, I don't see how the last sale could be a wash sale. You might be misunderstanding something, or it could be an error by the brokerage. Or maybe when you say you closed a position you mean something different from what I have described.

For positions where you still own some shares, you can recover the disallowed loss by selling all the shares that you still own, and not purchasing any shares of the same stock for at least 30 days after the sale.

Here is a link to an excellent detailed discussion of the intricacies of wash sales, with many examples. You will probable find it helpful.

The Wash Sale Rule

[Mike9241]

A few questions:

Tomorrow, If I were to repurchase the stocks that were involved in wash sale, hold them for 31 days, and sell them, would be able to recover from all the wash sale?

I think you are confused. if there is a wash sale then you sold a security at a loss and purchased identical securities 30 days before or after the date of the wash sale. so purchasing more shares and then selling them will do nothing to free up the wash sale loss that's included in the tax basis of the purchase that caused the wash sale.  you have to sell the lot that reflects the wash sale loss. if you sell at a gain the wash sale is released. if you sell this at a loss then buy more identical securities 30 days before or after this sale you have a continuing wash sale. the loss on this sale gets added to the tax basis which already includes the loss from the first wash sale.   
How many units of stocks do I need to purchase for each ticker? Does it need to be the same as the number of stocks that were involved in the wash sale?

again you are confused. a new purchase does nothing to free up the wash sale loss. you need to sell the shares with the wash sales loss. as sate d above if you now have a gain the wash sale losss is released. if you sell at a loss (example: actual purchase cost $50. assume this purchase caused a wash sale loss of $30. now the tax basis is $80. if you sell these shares at $85 you have a $5 gain because the wash sale increased the tax basis. if you sell these shares at $75 you have a $5 loss. if you buy more shares within 30 days before or after this sale you created another wash sale. this $5 loss gets added to the previous $80 tax basis so now you have a tax basis of $85) 

For the positions that I have closed, the last sale is still wash sale for some of the stocks. Are these special cases that need to be handled in a certain way?

are you sure? sales don't produce wash sales. only repurchasing within the specified time limit shares sold at a loss cause a wash sale.  do you want to provide full details of buys/sells of just 1 security? that 30 period can extend into the following year. sell at a loss on 12/27/2019. buy identical security on 1/24/2020 and you have a wash sale.

[therailsguy]

Hi Mike9241,

Thank you so much for taking time to answer in detail.

I basically asked for Realized Gain/Loss document from my broker, and they provided me one, which lists all the trade information. It includes Sell and Wash Events.

I was confused because the latest trades for VVOS is listed as Wash. I am wondering if they are listing it as washed for now, and when the 1099B is generated, they will mark these as losses, as long as I do not purchase any more VVOS within 30 days of these transactions.

Taking an example of the stock VVOS, I have attached links to two documents; one with both Sell and Wash events, one filtered down only to Wash event.

VVOS-Sell-Wash-Trades 

VVOS-Wash-Only 

To clear all my confusions, let me ask one last question.

I have made a lot of trades, and that has included a lot of wash sales. However, I close all my positions by selling all the stocks that have wash sales, and do not purchase those stocks again until February next year, will make all my wash sales as short term capital loss, and offset my short term capital gains? What if my sale when I closed the position was still within the 30-day period?

Thanks

Thanks

[therailsguy]

@rjs Thanks for the reply!

When you say that you closed a position, I assume you mean that you sold all the shares you owned of a particular stock, and did not purchase any more shares of that same stock for at least 30 days after the sale. In that case, the wash sale doesn't matter. You have already gotten the benefit of the loss because you have sold the replacement shares. The loss just gets transferred to a different sale. If that's what you did, I don't see how the last sale could be a wash sale. You might be misunderstanding something, or it could be an error by the brokerage. Or maybe when you say you closed a position you mean something different from what I have described.

That is correct. When I say I have closed a position, I have sold all my holdings in those stocks entirely. If you take a look at the VVOS trades attachment that I have included in my previous comment, you can see that the sales are marked as "Wash". Am I correct to assume that my broker is marking them as "Wash" for now, and when the 1099B is generated, it will be counted as actual loss?

I am just trying to be prudent here, just so that I do not end up with disallowed wash sales when I get my 1099B, and end up having to pay a huge tax bill.

If, like you mentioned, I sell all of my stocks, and do not buy anything until March of next year, all the trades that are marked as "Wash" in that document will be actual realized loss, and my net short term capital gain will only be $25,000?

I will take a look at the link you have provided.

Thanks again.

[rjs]

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@therailsguy wrote:

Am I correct to assume that my broker is marking them as "Wash" for now, and when the 1099B is generated, it will be counted as actual loss?

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You have to ask the broker that question. I have no way of knowing what the broker will put on your 1099-B.

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@therailsguy wrote:

If, like you mentioned, I sell all of my stocks, and do not buy anything until March of next year, all the trades that are marked as "Wash" in that document will be actual realized loss

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That is correct.

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@therailsguy wrote:

and my net short term capital gain will only be $25,000?

I can't confirm the net amount. I don't know how you arrived at $25,000. The last line of the VVOS-Sell-Wash document shows a short-term capital loss of $3,377.96. Are you looking at the 25,036 in the Quantity column? That's the number of shares, not dollars.

[therailsguy]

You have to ask the broker that question. I have no way of knowing what the broker will put on your 1099-B.

I asked my broker about this, but got an answer that they could not help on this, and instead asked me to consult with a tax planner.

I can't confirm the net amount. I don't know how you arrived at $25,000. The last line of the VVOS-Sell-Wash document shows a short-term capital loss of $3,377.96. Are you looking at the 25,036 in the Quantity column? That's the number of shares, not dollars.

The capital loss of $3,377.96 includes all trades, but does not account the loss from wash sale, right? In the 2nd document I have linked that only has the wash sale listed, the total capital loss is -$21,255.05 for VVOS.

When I said $25,000 in net capital gain, I meant it from my whole portfolio, not just VVOS trades.

Also, I consulted with a CPA, and he told me that since all my VVOS sales are considered wash sale, I have to purchase an equal amount of shares that were washed, wait for 30 days, and then sell them. Only after that, the capital loss will be accounted for. Does that make sense?

Again, thank you for the response.

[therailsguy]

For positions where you still own some shares, you can recover the disallowed loss by selling all the shares that you still own, and not purchasing any shares of the same stock for at least 30 days after the sale.

This is the conclusion that I wanted to know. I am going to close my positions of the stocks that have wash sale. Thank you so much!

[fanfare]

a wash sale occurs when a triggering buy of identical securities occurs within the window.

The term "replacement shares" is a misnomer.

When you close those triggering transactions, your loss will be realized.

It's too late to do anything about 2020 tax return.

Therefore there's no rush to close your positions in 2021.

Remember stocks are FIFO unless you asked your broker to reverse that and do LIFO.

Remember also that the triggering transaction can turn into a wash sale if it has a loss and you violated the wash sale window a second time.

Such loss is calculated taking into account  your adjusted basis.

[fanfare]

Never mind about 2020. I see you're dealing with tax year 2021 trades.

[amanmarwah]

HELLO ALL NEED HELP ASAP, 

I am looking at my etrade WASH SALE LOSS DISALLOWED section and it looks wrong.  For example I was buying and selling the same stock 40-50 times during the year, when I would take a wash sale loss disallowed it would not be added to the cost basis the next time I bought the stock like 40 days later, the cost basis showing on the 1099 is just the market price * shares + commission, I don't see for any of the buys I did all year where the wash share loss from prior sale was carried over to new purchase.  What should I do?

[RobertB4444]

@amanmarwah  You need to contact your broker.  If you believe that the wash sale loss amount is incorrect you need to contact them to find out how they calculated it.  If you can find an error there they should issue you a corrected 1099-B.  The only other option is to change the amount that is on the 1099-B to what you believe it should be and that is not recommended as it will not match the numbers on the form received by the IRS.