Wash sale loss disallowed Robinhood

[RS07]

I am also struggling with the same issue.

I tried reaching out to Robinhood and explained them by the issue by providing all the details, but today I got a very standard reply from them. Can anyone please suggest, what should I do next? Will tax professional be able to help with this, as there are lot of transactions through out the year and combing through all these seems to be a daunting task. :(

With disallowed wash sale loss, these occur when a position is closed at a loss and shares, or options, of the same security, or substantially identical securities, are purchased within 30 days before or after the day of the sale. 

In this case, if you purchased securities 30 days before the sale or after the sale, it could result in a disallowed wash sale.

When a disallowed wash sale occurs, the loss is added to the cost basis of the replacement lot and the holding period is subtracted from the acquisition date of the replacement lot, to make a new holding date. Note that this can cause the term to change from short term to long term in some cases. 

As you saw, you can find a list of your wash sales in box 1G of your 1099 tax document. We’re not authorized to give tax advice, so for specific questions on wash sales and how to file your 1099 tax document, we recommend speaking to a tax professional. 

[RS07]

Just wondering if you find someone reliable online that could help with this issue?

[AmyC]

Some brokerages report the wash sales clearly  for you and some don't. If the brokerage says they do not separate it, then you need to go through manually using the wash sale rule. It is a tedious process checking each transaction and number of shares.

Example:

Buy ABC 100 shares for $4,000 - date irrelevant

Sell ABC  100 shares April 1 for $2,000 0 could be a $2k loss

Buy ABC 50 shares  April 28 for $1,200

A purchase between April 2 and May 1, that is 30 days either side of the sale, you have a wash sale. So the wash is added to the basis and the most recent purchase is your purchase date.

However, only half the shares were purchased. So half is a loss and half is a wash.

Now, basis is $2,200, purchase date is April 28.

Half the shares reported as sold for $1k loss

This is why you really need to be tracking your purchases and sales with a spreadsheet like the IRS prefers. It makes it much easier to identify those wash sales. You will need to be tracking the new basis created from the wash sales as well.

@RS07

@fanfare  thanks for the catch in wording!  Edited 3/2/2022 (5:25 PST)

[fanfare]

@AmyC 

"Some brokerages handle the wash sales for you and some don't. "

There's a difference between not handling wash sales ( never heard of that since it's required by law),

and not handling correctly (no excuse for that either).

Clearly the Robinhood 1099-B under discussion shows some wash sale adjustments, but are they correct ?

Robinhood is pretty messed up, I'd stay away.

[waisaacs]

Hi Intuit TT community - I'm going to Pile On this discussion, as I also have questions about Robinhood's assessment of wash sale disallowed designation on the 1099B.  For those whose advice is to go hire a good tax accountant to take care of this, I would say that we use TT because we think we should be able to understand and do our taxes ourselves.  And echoing others' comments here, if I'm going to sign the return I need to know it's correct, whether that means trusting RH or a good tax accountant.

Generically, my questions are in two parts:

1) Is there a definitive list of rules that describe the wash sale rules as applied to stocks and options specific enough to follow?  I've read the IRS pubs on this ("substantially identical" and "consider all the facts and circumstances in your particular case") and find the instructions lacking.  I've read as much interpretation discussion as I can (is there a "replacement purchase" matching the prospective wash sale / loss transaction) and again don't have a rule in hand.

2) If I decide that RH has made a mistake and they won't correct it, what steps do I have to take in TT to adjust and document this?

I'll throw in one of my specific examples that I believe RH is flagging as a wash but is not clear to me should be.  Consider the following series of trades, assume everything is in the +/- 30 day window and for the purposes of discussion the options have the same expiration date:

- Buy NVDA 200 Calls  $800

- Sell NVDA 200 Calls  $500  [loss of $300]

- Buy NVDA 190 Calls  $800

- Sell NVDA 190 Calls  $1500  [gain of $700]

- Buy 2 shares NVDA  $400

RH seems to be flagging the $300 loss as a wash sale, I think because of the 2 share purchase within the window.  I would claim that the 190 Calls were the "replacement securities" for the loss sale of the 200 Calls, and that when I sold the 190 Calls, the wash sale resolved.   I'm still digging through the 1099, but I think there are situations where the share purchase came before the options transactions instead of after, but still in the +/- 30 day window, and again it was flagged.

I do realize I'm asking a tax question on a software support community discussion thread, but it's clear that there is a lot of general interest in this community regarding these wash-sale related tax questions, and subsequently how to make the appropriate adjustments in TT if you're stuck with a broker 1099 you don't agree with.

Thanks,

William

[fanfare]

When you are an active trader, the broker will match the CUSIP to determine whether a wash sale occurred.

If you trade with two brokers, this can't happen if you trade the same security, so you are responsible to make the adjustments for disallowed loss.

Obviously, this is best avoided. (or maybe not if you want to cheat).

"- Buy NVDA 190 Calls  $800"

Boom. If that's within +/- thirty days, you've got a disallowed loss.

"replacement securities" is a misnomer and not used by IRS. It is identical security ( as you pointed out) .

NVDA stock has a different CUSIP so that 2 shares has no effect.

[fanfare]

I think NVDA 200 calls and NVDA 190 calls could have different CUSIP. What does your 1099 say?

Maybe the broker considers them "substantially identical".

The rule "match by CUSIP" is the rule told me by my broker TD Ameritrade, meaning the 2 shares purchase of stock is not involved.

BUT, the IRS publication ambiguously says such stock may be considered "substantially identical" in this situation.

[waisaacs]

Thanks for the replies.  Curiously, Robinhood does not label the options trades or positions with a CUSIP, on the 1099, on the monthly statements, or on the trade confirmations.  Here's an example of the description part of an entry on the 1099:

     1a- Description of property/CUSIP/Symbol

     AAPL 07/16/2021 CALL $146.00 / CUSIP: / Symbol:

I'm going to have to reach out to them for more details on the wash determination, wish me luck.

It occurs to me that if CUSIP is the matching criterion for determining wash sales, and if every symbol/strike/expiration has a unique CUSIP, I don't see how even active short term trading of options (opening and closing calls and spreads, rolling such , etc) can ever result in a wash sale, except for trades left open over the end of the calendar year.  In my example, the loss on the first trade can't be called a wash if there is no other existing position of that NVDA 190 call to push the basis adjustment to.  Options bought/sold are either closed out or expire, and that's that.  Am I missing something?

I'll update here with the gist of the response I get from RH.

[fanfare]

Am I missing something?

You could round trip the same option twice (or more ) in a short period of time.

That's the only wash sale on my 1099-B this year.

TD does not show the CUSIP for options either.

[a15973]

Hi,

I have started to work on my tax returns using Turbo Tax and I saw the option you've mentioned on your reply (incorrect basis on the 1099). I do have a doubt with regards to the manual adjustment. Once I checked the option B - incorrect cost basis, how should I perform the adjustment to the correct amount? Should I just clear the washed sales amount of calculate and input the new cost basis? 

[RobertB4444]

@a15973  Yes, you will just delete the imported basis and enter your corrected basis.  As long as the B box is checked that should be all that you need to do.

[waisaacs]

Following through on my promise to update on communication with RH, in case it helps accelerate anyone else's interaction with them on similar issues.  Summary of my conversation so far:

Me: I need more information to verify my 1099 Wash sales, please send a wash sale analysis report

RH: A wash sale is when ...

Me: I know.  Please send more information ...

RH: We don't give tax advice ...

Me: I'm not asking for advice, just more information about my account ...

RH: Are you sure you understand what a wash sale is?

Me: I do, send more information ...

RH: We've created a document that has your full year transaction history including Wash sale labels and capital gains calculations, download ...

I still need to correlate my 1099 (did I mention they sent a corrected 1099 with significantly different Cost Basis and Proceeds totals?) with this document's wash list and with my own records to make sure that the capital gains were accounted for properly, but I now have slightly more information than I did.  I'll note that this document has "Security Number" and CUSIP as separate columns, and that the options do not have a CUSIP.  I'll assume that the wash matching is done on the Security Number which includes the expected symbol/expiration/strike data for the options.

Summary: if you contact RH Support about anything related to this issue, ask for the tax team to send you a full year transaction summary with Wash Sale notation and capital gains information.

Will update again once I analyze the wash details.

-William

[waisaacs]

Am I missing something?

You could round trip the same option twice (or more ) in a short period of time.

I realize that I was not being careful with my language.  My point was that unless the wash sale was for a security that you ended up holding through the end of the year, that the total applied capital gains for the trading of options like this will match your intuitive notion of your total trade gains.  Even if some of the sales are marked wash sale disallowed, when these options are closed out or expire, the adjustments to the cost basis of the matched securities should balance the accounting so your taxable gains are what you expect.  (I almost said 'it should come out in the wash' but that would have doubled down on my careless language.)  This is the thing I'm trying to verify was done correctly by RH and is being properly reflected in TT.

[JohnB5677]

Reconstructing Wash Sales is incredibly tedious for an active trader, but your basic premise is correct.  Wash sales will accumulate until the stock has a sufficient profit to offset the adjusted basis, or until the entity expires or is sold (plus the 31 day waiting period).

TurboTax merely echoes the information on your 1099-B.  There is not an evaluation process regarding wash sales.  Your broker's controls are the key to those transactions.

[fanfare]

"the adjustments to the cost basis of the matched securities should balance the accounting so your taxable gains are what you expect."

This happens on your next tax return (assuming you closed the trades). You have to wait another year to get the resolution you are so dearly seeking.

Your best approach is to avoid wash sales altogether as much as possible.