Wash sale on selling securities at a loss and buying puts that were sold to close at a loss

[saulgoodman]

All of the below happened in the past week:

1. I bought shares of a company over a couple of days without selling any in between.

2. I sold a few of its shares at a loss. 

3. I bought a put contract of the same company yesterday and sold it to close today at a loss.

4. I sold the rest of my shares of that company for a loss. 

Until this point, have I created a wash sale for any of my losses? I don't believe I have, since I haven't bought shares back after selling them at a loss, but correct me if I'm wrong.

Follow-up question: If I buy put contracts of the same company with an expiration inside 30 days, would that trigger a wash sale in any of the above losses? I tried reading the rules of wash sale on straddle position but couldn't wrap my head around the entire scenario. The reason I want to know this is because if I won't create a wash sale, I'd like to buy puts. My brokerage guy says I won't trigger a wash sale, but I wanted some reaffirmation on it. 

Thanks for reading.  

[Mike9241]

Until this point, have I created a wash sale for any of my losses? I don't believe I have, since I haven't bought shares back after selling them at a loss, but correct me if I'm wrong.

I agree with you 

Follow-up question: If I buy put contracts of the same company with an expiration inside 30 days, would that trigger a wash sale in any of the above losses? I tried reading the rules of wash sale on straddle position but couldn't wrap my head around the entire scenario. The reason I want to know this is because if I won't create a wash sale, I'd like to buy puts. My brokerage guy says I won't trigger a wash sale, but I wanted some reaffirmation on it. 

If I buy put contracts of the same company with an expiration inside 30 days, would that trigger a wash sale? if it was the same strike price and expiration date it is likely you have purchased an identical security which the IRS would deem a wash sale,  but see more below  

one definition of a straddle

you buy a call option and a put option on the same underlying asset. Both options have the same expiration date and the same strike price, creating two contracts centered on the same point. If the asset’s price rises by the expiration date, you can make money off your call option. If the asset’s price falls by the expiration date, you can make money off your put option. 

a covered straddle

position is created by buying (or owning) stock and selling both an at-the-money call and an at-the-money put. The call and put have the same strike price and same expiration date.

what is a wash sale for option purposes?

Losses on Options
you can have a wash sale when you close an option position at a loss, if you establish a replacement position within the wash sale period. The Treasury has yet to issue regulations (for IRC section 1091) under this rule which means there is a lot of uncertainty of when there is a wash sale. Foremost among these is the question of when one option is substantially identical to another option.

Until the Treasury decides to issue regulations or other guidance, no one can say exactly how the wash sale rule applies to losses on options. But there’s a pretty good rule of thumb that should tell you when you’re safe and when you’re on thin ice. If the positions you acquired within the wash sale period permit you to participate in the same up and down market swings as the position that produced the loss, there’s a chance the IRS will say you have a wash sale. If that’s not the case, you should be safe.

[NCperson]

@saulgoodman 

<<I don't believe I have, since I haven't bought shares back after selling them at a loss, but correct me if I'm wrong.>>

while it may not be germane to this situation, the washsale triggers all purchase transactions that occur 30 days either side of a loss transaction, so you have to look 30 days prior, the day of, and 30 days after the transaction or 61 days. 

example:

1) I buy 100 shares of X on May 1 at $10

2) I buy 100 more shares of X on May 10 at $15

3) I sell the May 10 lot (100 shares)  at $11 per share on May 25

that is a wash sale loss situation - because I sold shares at a loss but purchased a similar security within 30 days on either side of the loss transaction, which I did because of the May 1 transaction, I have a wash sale loss of $400 on the May 25th sale and that $400 gets added to the cost basis of my May 1 transaction.

I could have decided to sell the May 1 lot instead of the May 10 lot.  In that case, I have a reportable gain of $100. 

[fanfare]

A) once you have closed out all your positions in that security, the wash sale rules become irrelevant, unless your action is on the last couple of days in December.

B) These are all covered transactions and the broker is required to do all the wash sale accounting and reporting for you.

C) according to TD Ameritrade, options within the 30-day time frame of stock losses don't trigger a wash because the CUSIPs are not the same and that's what they look for. In the same breath the person said, IRS rules may be different.

I go by paragraph B)

@saulgoodman

[saulgoodman]

Thanks for replying @Mike9241 .

I wanted to clarify this part: If the positions you acquired within the wash sale period permit you to participate in the same up and down market swings as the position that produced the loss, there’s a chance the IRS will say you have a wash sale. If that’s not the case, you should be safe.

I lost money on stocks (and options) and I'm planning to buy puts. If the stock goes down further, I make money on it.  That seems to fit your definition of a wash sale, doesn't it?

[saulgoodman]

@NCperson, thanks for replying. Wanted some clarity on this part: "the washsale triggers all purchase transactions that occur 30 dayseither sideof a loss transaction, so you have to look 30 days prior, the day of, and 30 days after the transaction or 61 days."

So in your scenario, is it a wash sale because you made a loss on one set of purchases while you might have made a profit at another? To clarify, if the stock had gone down to $9, would it have been a wash sale regardless of which lot of shares you sold, just because you purchased shares 30 days prior? That would technically mean that almost any short-term trading loss would result in a wash sale and that seems weird to me.

[saulgoodman]

@fanfare, thanks for replying. My issue isn't with the broker reporting it accurately. They'll do fine. I just wanted to know where I stand with respect to this because it's no point losing unnecessary money on this stock when I can go for another. I wanted to weigh the cost against the opportunity I see. And in case I take another beating at it, not being able to report it would suck majorly. 

[Mike9241]

 bought a put contract of the same company yesterday and sold it to close today at a loss.

it is hard to say whether or not you have a wash sale if you buy puts within the 30-day period that have a different strike price or expiration date. 

even the following is meant more for traders that have not made the 475(f) election because they are in and out of positions over short periods of time even multiple times in a day.

If the positions you acquired within the wash sale period permit you to participate in the same up and down market swings as the position that produced the loss, there’s a chance the IRS will say you have a wash sale. this comes from a law firm but no clarity or example is provided.  say your original put was a Jan 20 bought when the stock was 15.  within 30 days of closing the Jan 20 at a loss, you buy a Feb 15 when the stock price is 10. is this what they mean? but what if the stock price is 11 

as stated the IRS has never published clarifying regulations. 

[saulgoodman]

@Mike9241, thanks for that. I guess at this point, there's just one way to know and that's by trying it out. Given that the loss borne by me never vanishes and can be claimed later, it probably isn't a huge issue. 

[NCperson]

@saulgoodman 

<<So in your scenario, is it a wash sale because you made a loss on one set of purchases while you might have made a profit at another? To clarify, if the stock had gone down to $9, would it have been a wash sale regardless of which lot of shares you sold, just because you purchased shares 30 days prior? That would technically mean that almost any short-term trading loss would result in a wash sale>>

the wash loss is date dependent, not price dependent.  The IRS wants to prevent you from creating a loss just to take a tax deduction.  And they figure if you sold a security and bought it back within 30 days either side of that loss, that was your motivation - to take the loss on your taxes.  

no, in my scenario, it is a wash sale simply beacuse there is a lot that remains outstanding that was purchased within 30 days of the loss transaction.

yes, it would still have been a wash loss sale even at $9 per share because of the remaining lot on May 1 which is within 30 days of the loss sake.  it's the date that matters and not the price. 

it you have a short term trading loss and exited the positon entirely, you can take the loss on your taxes.  there is no lot purchased 30 days either side of the loss transaction that remains, so there is no wash sale transaction.