What are the Wash Sale Rules for these scenarios?

[user99991]

Hi All,

I hope everyone is safe and sound.

I couldn’t find any clear information online about the wash sale rules about these possible scenarios. It seems like a gray area in most of the tax articles.

Here are my questions;

Scenario 1

Let’s say; On April 1st, you bought 100 shares of AAL American Airlines for $10 ($1,000). Then, the price of AAL went down $9 on April 5th. You thought it’s a great deal and bought 10 more extra AAL shares for $9 (for extra $90)

Unfortunately, on April 17th, the price of AAL dipped down to $7 and you sold all of your 110 shares for a loss. Eventually, A “wash sale” transaction appeared on your account. These transactions happened within the wash sale window. According to my calculations, you lost $300 from the sale of your 100 AAL shares and $20 from the sale of 10 AAL shares. Are you allowed to claim that $320 total loss on your taxes now? On a YouTube video, a guy said that “If you buy even 1 extra share during the wash sale window, you’re disallowed to claim the total loss”. That is very confusing to me. As far as I know, there’s a cost basis adjustments for these situations but that’s not very clear to me if you sell all of your stocks before 30/61 days with a loss.

Scenario 2

You bought 100 shares of AAL American Airlines for $10 ($1,000) on April 1st. Then, the price of AAL went down to $9 on April 5th and you bought 50 more AAL shares for $9 ($450).

On April 7th, this time the price of AAL went up to $9.5 and you sold all of your 150 shares. What happens in terms of capital gain/loss in this case? Again, it happened within the famous wash sale window. According to my calculations, you lost $50 from the sale of 100 AAL shares but you gained $25 from the sale of 50 AAL shares. Are you allowed to claim that $25 total loss now? Because you may still have a wash sale rule on your transaction.

Scenario 3

Again, you bought 100 shares of AAL American Airlines for $10 ($1,000) on April 1st. Then, the price of AAL went down to $9 on April 5th but this time you bought 80 more AAL shares for $9 ($720).

On April 10th, the price of AAL went up to $9.75 and you sold all of your 180 shares. What is the capital gain/loss situation now? All of these transactions happened within the same wash sale window. According to my calculations, you lost $25 from the sale of 100 AAL shares but you gained $60 from the sale of 80 AAL shares. In this case, what is our taxable gain? Is it $60 or $35?

Thank you!

[Critter]

In all situations you posted ...  if you sell everything and you do not repurchase the same stock  then you have no wash sales to deal with.

[fanfare]

There is no grey area. The wash sale rules are described in detail in the IRS publications.

Good news. If you are using one broker for all your activity, the broker will track your wash sales for you.

This is required by the IRS.

[fanfare]

if you buy back one share in the window, you are disallowed the loss on one share.

Take what you read on the internet with a grain of salt.

[TomYoung]

As others have said, you don't have wash sale problems in any of your scenarios.  The reason you don't have a wash sale loss under any of these scenarios was that in no case did you come out of the 30 day window owning "replacement shares."   It's the replacement shares that absorb the deferred loss, but you had none.  Ergo, the loss can be recognized.

[fanfare]

Coming out of the window with no shares doesn't matter.

You bought identical shares (firstly, and at a low price) within thirty days prior to selling second shares at a loss, then you have a wash sale of second shares.

BUT, your identical shares' basis was adjusted, and you sold everything.

The net effect is that you will end up with full deduction for any loss.

IRS talks about identical shares, not replacement shares.

Check your 1099-B consolidated report at year end to see who's right.

It should show "W" for wash sale.

[user99991]

Thanks for your response.

I had a very similar scenario like #1 with different stocks.

I bought some shares and then a few extra [cheap] shares on the same day. One week later, I sold half of it for a loss. Then two weeks later, I sold rest of it for a loss. My broker flagged the transactions as wash sale on realized/unrealized gains page. It says (Cost Basis adjusted for Wash Sale) under the sale of cheap shares. That's why I got little confused.

Thanks again.

[user99991]

Thank you for your response. 

I think the only gray area for me is the 30 day before the sale rule for 'wash sales'.

30 day after rule makes sense to me. I am also careful with the IRA wash sale rules.

[Critter]

The wash sale rules really came into being to keep people from creating artificial losses at the end of the year to "cheat" on their tax returns. 

Technically you did have wash sales which your broker caught by adjusting the basis but in the end, since you bought and sold everything in the same tax year, you have the exact same results.