Wash Sale Loss Disallowed - Carry Over

[vrobert]

I had substantial disallowed wash sales on long term and short term earnings last year. Since the wash sales are not allowed this year, do they carry over into next year on the securities? Or are wash sales for the year wiped out going into next? Trying to understand the process.

[ThomasM125]

A wash sale occurs when you sell a security at a loss, then purchase it or something similar back again during the 60 day wash period (30 before and 30 after the sale). When this happens, the  loss deduction on that sale is dissallowed permanently, it is not carried over to future periods. You can only recognize the loss when you sell the security aquired in the wash sale later on and don't re-invest the proceeds back by purchaseing the same or similar security within the 60 day wash period.

[vrobert]

Is this accurate though:

If a wash sale is left on then that loss cannot be included in taxes for that year, but it will be added to losses in the next year when the trade is closed for a profit or if a loss another not opened for 30+ days.

[GeorgeM777]

No, it's somewhat misleading.  The disallowed loss is not added to losses in the following year.  What happens with a wash sale as @ThomasM125 explained, is that while the loss is disallowed it also becomes permanently suspended.  Should the taxpayer, or investor, re-purchase the same security, then that previously disallowed loss is added to the cost basis.  Thereafter, if the taxpayer/investor should sell the security, and incur a loss, that loss will be realized provided the taxpayer/investor does not again repurchase the same or similar security within 30 days of the sale.  

Additionally, that 30-day window referenced in the previous paragraph includes the period of time before the sale as well.  So that the prohibitive period covers a total of 61 days, that is, 30 days before the re-purchase and 30 days after the sale.  

@vrobert

[Mr Washsale]

So if you have a repeating wash sale for 10 months and even close out the positions in NOV, the only way to recover is to buy the same security after 31 days of no (open trade) and have gain or (losess with no wash sales) on the next batch of sales?   when does the cost basis go back to zero?

Then if you buy the security back how does dividends help or hurt?   Then if they become long term? 

I have spoken with so many people and get different answers.  

The problem is TD Ameritrade has a 2023 realized gain loss report with wash sales and calculates the st gain, short term loss, and short term net while tracking the wash sales on another form but I think what will happen is they will adjust all the wash sales at the end of year and report it as a dissallowence and do you dont feel the pain until feb.  The short term net is not the amount you really need to determine the damage. Does this sound correct?

Thanks

[Mike9241]

So if you have a repeating wash sale for 10 months and even close out the positions in NOV, the only way to recover is to buy the same security after 31 days of no (open trade) and have gain or (losess with no wash sales) on the next batch of sales?   when does the cost basis go back to zero?

when you close a position any previous wash sale loss is included in the tax basis for determining gain or loss. If there is a net gain (including any previous wash sale loss included in the tax basis) there is no more wash sale loss to deal with even if substantially identical securities are purchased (or perhaps sold if a short sale was involved) within the 31 days of that closing.  if there is a net loss (including any previous wash sale loss included in tax basis) on closing out a position you must wait the 31 days to reestablish that position to avoid again triggering a wash sale. Do this and any wash sale loss included in tax basis on the closing of that position is recognized.          

dividends, except return of capital dividends which reduce tax basis, should not affect wash sales except if they are reinvested. 

when there is a wash sale on a long position the holding period of that security tacks on to the holding period of the purchase of the security that triggered the wash sale.   With multiple wash sales with a position over a period of time the holding periods keep tacking on.  So repeated wash sales can convert short-term to long-term.