Sale of wrong lots makes it seem like I had losses and wash sales; how to correct?

[t_t_user1000]

When I sold some stock lots turns out the unintended lots sold, and as a result my broker statement shows a large disallowed wash sale. Using sample values:

1. purchased lotA for $1000

2. much later stock price fell, purchased lotB for $100

3. few days later wanted to sell lotB for $120. sadly lotA sold, so looks like loss of -$880

4. few days later purchased lotC for $60

5. few days later wanted to sell lotC for $80. sadly lotB sold, so loss off -$20

6. much later stock price rose, wanted to sell lotA for $1100. But lotC sold, gain of $1040

so although the overall gain should be $140 (three gains of 20,20,100), looks like I have a gain of $1040 and two wash sales of $900, which are disallowed. I never intended to sell at a loss, and even chose the lots carefully, but somehow the wrong ones got chosen, so looks like I sold at a loss.

What are my options here? I haven't yet contacted the broker, but not sure they can swap lots a many months after the fact. Is there a form to use to correct such problems?

[JohnB5677 · Accepted solution]

Unfortunately, you don't have many options.

Stock sales generally work a First In First Out (FIFO).  Unless you specifically requested certain lots to be sold through your broker, the FIFO rule is what would be applied.

It does sound like you did have Wash Sales.

• A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar.
• It also happens if the individual sells the security at a loss, and their spouse or a company they control buys a substantially similar security within 30 days.
• The wash-sale rule prevents taxpayers from deducting a capital loss on the sale against the capital gain. 
• Wash Sale Rule

If you've sold all of your stock , although they still show,  the Wash Sales will have been neutralized.

Although the wash sale is disallowed, the amount of the loss is added to the basis of the next same stock that you purchase.  Thusly, if you sell all of it in one year it will clear itself out.

[t_t_user1000]

Thank you very much for your answer.

I do have explicit lot selection chosen as my trading preference; and I always try to place orders by acting on a lot; however sadly E-Trade still does the wrong association sometimes. You have to check it like a hawk after every sale...

Just to confirm this item:

> If you've sold all of your stock , although they still show,  the Wash Sales will have been neutralized.

I have indeed sold all that stock during the year... So does that mean effectively things are good, and I pay taxes on the actual gains only (which in my example would be $140) ?

[fanfare]

when the lot that triggered a wash sale is sold your loss is then applied.

Just enter the data on your 1099-B.

complain to the broker for not honoring your instructions,

or find another broker.

[t_t_user1000]

Thank you both, appreciate the answers.

[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?

[fanfare]

@amanmarwah 

"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,"

You don't see it because It doesn't work that way.

First, 40 days later is outside the wash sale +/- thirty day window.

Second, it is the triggering BUY that gets its cost basis adjusted, when a wash sale loss is disallowed.

a triggering BUY would have occurred +/- thirty days around your SELL order.

The broker is required to track all this for you, so there is nothing for you to do.