WASH SALE STOCKS

[DianeW777]

I understand your position and your are correct.  The explanation is necessary due to misunderstandings and confusion.  If someone enters a wash sale loss in their return and then they realize they must remove it, then it does show them a different result on the tax return.  

In the end they are reporting the gain/loss they are and were always allowed to report.

As for options I wanted to include this to be clear: The wash-sale rule states that the tax loss will be disallowed if you buy the same security, a contract or option to buy the security, or a "substantially identical" security, within 30 days before or after the date you sold the loss-generating investment (it's a 61-day window).

@aweeva

[aweeva]

Hello,

So what exactly are the adjustments that need to be made in TurboTax for disallowed losses on fully closed positions? It seems like TurboTax should probably prompt folks in this situation to review whichever sales that this applies to because the default of just adding the entire disallowed loss amount to someone's taxable income seems like it would lead a lot of people to pay extra taxes.

[GeorgeM777]

You will need to manually adjust the cost basis to account for the wash sale rule.  You are correct in that when losses are disallowed as they are with a wash sale, that will have the effect of increasing gains and thus, increasing tax liability.  TurboTax cannot automatically adjust cost basis for wash sales.  Such adjustment has to be done at the brokerage firm and entered on a 1099-B or a corrected 1099-B.

To make an adjustment to cost basis using TurboTax online, follow these steps:

1. Go to Federal,
2. then select Income & Expenses,
3. then scroll down to Stock, Cryptocurrency, Mutual Funds, etc...
4. at the Investment sales summary screen, select Add more sales,
5. on the next screen, enter your information, but put a check mark in the box The cost basis is incorrect or missing on my 1099-B,
6. on the next screen, don't check the box None of these apply.  Just click Continue,
7. on the next screen We noticed there's an issue with your cost basis... is where you can enter your adjusted cost basis.

@aweeva

[fanfare]

So much misinformation on this thread.

The moderators should delete it.

[aweeva]

Really useful info from you, thanks for chiming in.

[fanfare]

@aweeva 

you do not make changes to the wash sales listed on your 1099-B.

Instead, report them as shown.

IRS requires details of transactions with adjustments (e.g. wash sales) to be itemized.

If you trade the same security across two brokerages, you may trigger additional wash sales that neither broker knows about. These you have to report yourself.

[MCTaxPro]

Hi there, I reviewed this thread and have a lot of experience preparing taxes for clients with different stock sales, so I figured I should chime in. I've struggled with this reporting discrepancy and lack of information available, so here's my 2 cents to save us all some time in the future:

E-Trade & Morgan Stanley are probably one of the worse in regards to how they report wash losses and gain/loss on stock sales, since it generally doesn't add up to the adjusted gain/loss on your taxes. Most other brokers such as TD Ameritrade, don't have this similar issue, as they're wash losses and gain/loss shown on 1099-B will actually reconcile to the adjusted gain/loss.

For E-Trade, you need to input into your tax return the total proceeds, cost basis, and wash loss as shown per your 1099-B. The gain/loss on 1099 will not match your Schedule D on your tax return because E-Trade, again, terrible in regards to this, does not exclude wash losses from the gain/loss on the 1099.

Example: 

Sales/Proceeds: $8,000

Cost Basis: $12,000

Wash Loss: $2,000

E-Trade will show this on 1099-B as: $8k - $12k = $4k loss (they'll also show the $2k wash loss, but it doesn't impact their gain/loss column). So even though they show $4k loss, that actual taxable loss will be $8k - $12k + addback $2k wash loss disallowed = $2k loss on your taxes on schedule D and/or 8949.

Bottom line: since E-Trade is bad with their taxable reporting and doesn't care to clarify this anywhere on their form (or online the last time I checked), you simply need to know that your adjusted gain/loss reported on taxes will not match their number, with the variance being the wash loss (since E-Trade is showing the true gain/loss on 1099-B, but not necessarily the taxable gain/loss which factors wash losses). The rules might change and E-Trade might eventually get with the program and fix this, but this message should be accurate for the 2021 tax reporting year. Hopefully they fix it starting with the 2022 tax year.

[fanfare]

As an active investor, be aware that your category Box A or Box D sales without adjustments do not require Form 8949, so there is no reason to import or key in those transactions.
Instead use the "enter a summary" option to put your numbers on Schedule D Line 1a or Line 8a.
--
If you have wash sales, it gets more complicated since those adjusted transactions have to be itemized on Form 8949 and the summary totals adjusted accordingly.

First enter the wash sales on Form 8949, then use the subtotal results on the bottom of that form (Line 2) to know how much to subtract which gives you the Schedule D line 1a totals. Be sure to NOT check the adjustments box in the summary window.

That's how I do it.

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Note: if your consolidated 1099-B is not correct, all bets are off.

@MCTaxPro 

[Mr Washsale]

Hello,

Where do you add this to in turbo tax.  I see the wash sale disallowance and now you saying the broker doesn't adjust or see when a w/sale is carried (over/not allowed).  

is this figure the total of the deferrals on the summary from broker., "deferral"

[fanfare]

I use TD Ameritrade and I can assure you that the broker tracks disallowed loss from wash sales correctly.

IRS requires this, since 2012. Basis must be reportied to the IRS (Category A, D)

If E-Trade is not doing it, I don't know how they would get away with it.

You may want to switch brokers.

See also my replies above at ‎04-13-2022 1:44 PM, and earlier. It all still applies.

@Mr Washsale