Wash Sale Chain

[dillon_smith92]

@AmyC ,

Please tell me if this seems to be correct (all contracts represent 100 shares, like standard option & are substantially similar):

2 TGT Option Contracts Sold on 12/16/22 at the same time

- 1 acquired on 8/19/22, sold for $1,177.68 loss

- 1 acquired on 11/16/22, sold for $159.67 loss

1 TGT Option Contract Sold on 12/23

- acquired on 12/05/22, sold for $70.67 loss

1 TGT Option Contract sold on 1/30/23

- acquired on 11/16/22, sold for $168.35 loss

Okay, the first two contact were sold together (2 contracts), which was sold first is unknown since sold together, so we have to start with the first acquired, which is 8/19/22. Based on wash sale rule, the 11/16 is a wash to that sell, but which one (either of the 11/16s or the 12/15)? Well, based on what I know, we have to go for first acquired, which is one of the 11/16s, looking on the intra-day activity, the 11/16 that was sold on 1/30 was bought FIRST; therefore, 1 contact on 8/19 sold on 12/16 is a wash sale to 1 contact bought on 11/16 and sold on 1/30 - that contact sold on 1/30 will take the date and loss from 8/19 sell as its basis, and will NOT be able to be recognized until 2023, assuming no more buys within 30 days before or after 1/30/23.

That leaves the OTHER 11/16 1 contract that was sold on 12/16, it will be a wash sale to the 1 contract bought on 12/5 due to the 12/5 being bought within 30 days after that sell. There have been no additional buys 30 days before or after 12/23, so it can be recognized on 2022 taxes. Still a wash sale and the 12/5 contact sell will take the date of the 11/16 that was sold 12/16 and the loss from that one added to basis.

That matches up both contacts and is done in proper order and chaining, correct?

In a nut shell, that means I will be able to recognized the $159.67 & $70.67 losses in 2022, but the $1,177.68 & $168.35 losses will have to wait until 2023.

Am I correct in all of this?

Thanks in advance!

M. Dillon Smith

[AmyC]

Nope. You purchased 12/5 substantially similar stock. No loss in 2022 for you. You agreed they are substantially similar.  We are back to where we started this conversation when I said they would all end up rolled into one basket. Beware the holding period though because it is absorbed also, bolded below for you.

Go back to the wash rules About Publication 550, Investment Income and Expenses:

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,

Acquire substantially identical stock or securities in a fully taxable trade,

Acquire a contract or option to buy substantially identical stock or securities, or

Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.