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j g
Level 2

Still not fully clear - wash sale:

Still not fully clear - wash sale. I've 2 accounts, A and B, stocks. All stock purchases described below are in the same year. I buy some shares of LW in account Bon May 15, then sell some days later for a loss. My reading on wash sales says the "trigger" for a potential wash sale begins only with a sale at a loss.

 

Now, it turns out, I had bought some shares of LW also in account A on May 1. Consider 2 possibilities for these LW shares in account A: 1. I hold indefinitely; 2. I may sell if the price takes me to a profit.

 

Am I correct in assuming account A can never have anything to do with the "triggering" mechanism in account B, since the "triggering" came later? Therefore, I can just disregard anything in account A having to do with this potential wash sale example?

5 Replies
NCperson
Level 15

Still not fully clear - wash sale:

@j g - the wash sale rules pertain the to 61 days surrounding the time you sell a security at a loss - that period is 30 days before and 30 days after the sale occurs.  You can not purchase the substaintally same sucurity during these 61 days and take the loss on your tax return.

 

You state you purchased LW on May 1 and May 15. The fact that the purchases occured in two different accounts is immaterial.  You then state you sold some of the LW shortly after May 15 (but presumably prior to May 31)

 

The wash sale rules are in effect because that sale at a loss occured within 30 days of the purchase of the same security that occured on May 1

 

The loss is not deducible until shares originally purchased on May 1 are sold - even if that is years into the future.  The loss that occured shortly after May 15 is simply added to your cost basis on the May 1 lot of securities purchases. 

 

here is a good aricle on the subject: 

 

https://www.fidelity.com/learning-center/personal-finance/wash-sales-rules-tax#:~:text=The%20wash%2D....

fanfare
Level 15

Still not fully clear - wash sale:

You can't hide from the wash sale rules by putting the BUY transaction in a different account, not even into a tax-deferred account.

Otherwise, that would effectively eliminate the wash sale rules.

 

Nevertheless, many cheaters do it and expect to not be audited.

 

@j g 

Mike9241
Level 15

Still not fully clear - wash sale:

there is something else that i think is important. the ordering selection for the stock sold.  if FIFO is the method you use for accounting for which shares are sold, then I believe the shares you sold were the ones acquired on 5/1. 

 

The LIFO method is one that you have to elect affirmatively with your broker. The main benefit of the LIFO method is that the shares that you've owned for the shortest period of time tend to be the ones that have the smallest taxable gain, and so you can make a sale without incurring a large tax bill. if you elected LIFO then it was the 5/15 shares sold.  

 

if it's fifo, then the broker that handled the sale won't know about the other shares and will, i believe, use the 5/15 purchase. this may require you to make manual adjustments from what is reported on your tax return with the appropriate coding so the iRS knows why what your reporting is different than the 1099-B.

 

fanfare
Level 15

Still not fully clear - wash sale:

The triggering transaction that triggers a wash sale is a BUY transaction within the specified time window of your losing SELL transaction. You might have several wash sales due to one BUY transaction depending on the number of shares involved.

NCperson
Level 15

Still not fully clear - wash sale:

@Mike9241 - OP states he had two accounts - the May 1 lot was in account A and the May 15 lot was in Account B.  He stated he sold the lots in Account B.   For all we know that is at two different brokerage houses.  Can't see how FIFO / LIFO comes into play in this siutation.  OP always has the choice to identify the specific lot he wants to sell, which may not be either lot if there were more than two lots. 

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