Tax loss harvesting: 30 day rule

[bt_21]

Hello, I am new to this tax loss harvesting strategy as we approach the end of the year. I understand how it works, but I am having trouble with the gray area of the wash-sale rule.

For example: I first purchased stock A back in September 18 of this year. As the price continued to go down I purchased more shares. The most recent purchase of shares was on december 13th to continue and increase my position of Stock A. I have not sold any shares of this stock since I owned it.

If I sell this stock at a capital loss before the end of the year, will the wash-sale rule apply since I technically bought shares within the 30 day window even though i didn't sell since I owned this stock?

thanks

[Bsch4477 · Accepted solution]

The wash rule would apply for the shares bought December 13 if they incurred a loss but not the shares bought in September. 

[Mike9241 · Accepted solution]

a wash sale occurs when a security is sold at a loss and during the 30 days before or after the sale substantially identical securities are acquired. see below 

example 1: if you sold all shares held on 12/27/2024 at a loss, any purchase on or before 1/27/2025 would result in a 2024 wash sale but only on the number of shares purchased due the period 12/27/2024 and 1/26/2025.

example 2: you sell only the shares acquired on 9/18  at a loss on 12/27/2024. you would have to wait until after 1/26/2025 to purchase more shares to avoid a wash sale.

example 3: you sell some shares at a loss on 12/27/2024.  You buy substantially identical securities in your IRA account on 1/15/2025. A wash sale has been created.  

the wash sales loss disallowed adds to the tax basis of the securities acquired that caused the wash sale (except in the case where the purchase is in a tax-exempt account like an IRA). In addition, the holding period of the original security tacks on the reacquired shares.  

code section 1091

(a)Disallowance of loss deduction
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165

[bt_21]

Thanks for the reply! So if I sell all of my shares at a loss I will only be able to deduct the amount the shares I had at a loss before I purchased more on Dec 13th?

[Bsch4477]

Yes. That should be clear on your brokerage statement. 

[Mike9241]

So if I sell all of my shares at a loss I will only be able to deduct the amount the shares I had at a loss before I purchased more on Dec 13th?

not quite. today is 12/18/2024 so if you sell all the shares you hold today that would include the shares purchased on 12/13.  if sold today, and assuming all shares sold were at a loss, any purchase from 12/18 through 1/17/2025 would trigger a wash sale but for only the number on shares purchased (up to the number sold). There would be added complexities if some shares were sold at a gain

for example, some shares were purchased at $9 and some at $8. All were sold for $8.50. If there was a purchase of an equal number of shares 30 days after the sale then there would be a wash sale on those costing $9 but not those costing $8.

another example, the $9 shares were purchased before the $8 shares and you sold some shares for $8.50 (after buying the $8 shares) 

you could tell the broker that you are selling the $8 lot. Thus you have a gain and no wash sale. this assumes the number of shares sold was the same or less than the number of the $8 shares bought. 

[fanfare]

Set your FIFO or LIFO options online before you place an order.

If broker doesn't have that online option (unlikely), you'd have to write a paper letter to broker with instructions.

The default is FIFO.

If you want to claim a 2024 loss , broker must wait to see if you bought back too soon in 2025. That's why your 2024  1099-B won't come until late February 2025.

@bt_21