1099-B question - box 1g wash sale loss disallowed

[Mitzy20]

If you have a loss on a 1099-B, either a short term or long term covered security, AND there is a wash sale disallowed amount (Box 1g), is that wash sale disallowed amount added to the loss, or subtracted from it?

Example 

Box 1d: 71,836.63

Box 1e: 71,967.68

Box 1g: 2.59

the 1099-B shows a loss of 131.05 before applying Box 1g.
in other words, does box 1g increase the loss or decrease it?

[AmyC]

Neither. A wash sale is added to the basis of the next purchase.

A wash sale means you were buying and selling the same security within a disallowed time frame (30 days of the sale) and the loss is added to the basis of the stock you bought.

Your brokerage may or may not be keeping up with your wash sale losses and your basis. You should be doing that.

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

[Mitzy20]

Sorry - not 100% clear on your response. I am asking how TT handles box 1g with respect to calculating gain or loss.

It appears TT added box 1g (2.59) to the -131.05 loss on the 1099-B and, as a result decreased the loss to -128.46:

Example given in original post:

Box 1d: 71,836.63

Box 1e: 71,967.68

Box 1g: 2.59

the 1099-B shows a loss of 131.05 before applying Box 1g.

So while it impacts basis - doesn't it also impact the total net gain/loss that is used to determine tax on the 1040? 

[DianeW777]

Yes, it will impact the overall gain or loss if a wash sale is still in play on December 31st. The information below should help clarify the rules of wash sales.

Wash sales cannot be combined into section totals.  They should be entered individually so that you can track your cost basis and know when you are allowed to use the information on a final sale. Only you know the cost basis and the financial company only knows when a wash sale occurs, not when it ends.

Wash Sale Rule Defined:

• 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 of other stock.

Affect on Cost Basis:

• The loss that occurs on a wash sale is added to the cost basis of the shares purchased that created the wash sale.
• When all shares are sold and there is no repurchase, that increased cost basis will be used in full and used to determine gain or loss.

As long as you are tracking the wash sales and are not using them on the tax return when you are not allowed, then you can simply enter the same cost basis as the selling price. This will  reconcile your tax return with your Form 1099-B Proceeds which is what the IRS is comparing.

Wash Sale ends:

The wash sale disallowed is not added to the net gain/loss rather it is adjusted and suspended so that it does not affect the total gain or loss for any pending wash sales.  The rub is that the broker only knows when a wash sale occurs, not when a wash sale no longer exists. This can spill over between two tax years.  Likewise you can have a wash sale during a tax year, and then fully dispose of the stock in the same year which would eliminate the wash sale rule for the final sale of the same stock. 

It's up to you to know when you no longer have to consider the wash sale rule. 

Example: 

X bought 5 shares of ZZZ stock, at $5 per share, then sold it for $3 per share, however immediately before the original 3 shares were sold, X bought another 5 shares at $5.00 per share.  

     $25 for the first block of shares

       15 is the proceeds creating a $10 loss 

The $10 loss is now added to the cost of the new shares for an overall cost basis of $35.  

Once the second block of shares is sold (5 shares with cost basis of $30) without any repurchase with in the 60 day window (30 days before or 30 days after the sale), and if they are sold at a loss, then no wash sale exists on the sale, and a loss is allowed.

@Mitzy20