Adjust TT for undocumented (not captured on 1099) wash sale of stock

[davidsson]

I created a wash sale by purchasing shares in my Roth account after selling for a loss in our taxable account.  

For the sake of this discussion, the disallowed amount of the loss is $500.

I downloaded my brokerage file into Desktop TT Premier.

What and how do I need to adjust my TT file to document the wash (disallowing $500 of our loss)?

Note:  Since the purchased shares (creating the wash) were in a Roth account there's no need/benefit to adding the wash amount to the basis of the new shares.

[Mike9241]

code "w" in the adjustment column. Enter the disallowed loss as a positive number. 

[davidsson]

Is this to form 8949, column-f gets the 'W' and column-g gets the adjustment (reducing my loss)?

Is any explanation required? If so, how is that documented?

Is there any way (or any need) to remove the Red exclamation point next to form 8949?

Will this cause any problems with filing electronically?

Thank you so much!!!

[DaveF1006]

Here is the breakdown of how to handle Form 8949 and that red exclamation point.

1. Reporting the Wash Sale

You are correct on the mechanics. If you have a disallowed loss due to a wash sale:

1. Column (f): Enter the code W.
2. Column (g): Enter the amount of the disallowed loss as a positive number.
3. The Result: Since Column (h) is calculated as $(Cost - Proceeds) + Adjustment$, entering the loss amount as a positive number in Column (g) effectively zeros out the loss (or reduces it), ensuring you aren't claiming a deduction you aren't allowed to take yet.

2. Is an Explanation Required?

1. For a standard wash sale reported by your broker (which is usually the case for stocks), no separate written explanation is required.
2. The "W" code itself acts as the explanation. The IRS knows exactly what that code means. You only need to provide additional documentation if you are disputing the broker's math or if you have a very complex scenario involving wash sales across different accounts that weren't captured on your 1099-B.

3. The Red Exclamation Point

 It usually appears because:

1. Manual Entry: You might have typed the "W" but left a related field blank.
2. Review Flag: The software wants you to "Check Entry" to confirm you didn't accidentally trigger a wash sale by mistake.
3. How to remove it: Click on the "Review" or "Errors" tab in your software. It will take you to the specific line. Usually, once you verify the entry or click "Continue" through the guided questions, the software clears the flag. If it stays red, you may be missing the date acquired or date sold, which are mandatory for electronic filing.

4. Electronic Filing Concerns

1. A wash sale will not prevent you from filing electronically, provided the form is filled out completely.
2. The IRS receives millions of 8949s with "W" codes every year. As long as your totals from Form 8949 flow correctly onto your Schedule D, your return is electronically "clean."

Quick Checklist for E-Filing:

1. Ensure Box A, B, or C is checked at the top of Form 8949 (indicating whether the basis was reported to the IRS).
2. Verify that the Description of Property (Column a) is filled in.
3. Check that the Adjustment amount in Column (g) matches the "Wash sale loss disallowed" amount on your 1099-B.

[davidsson]

Thank you for the info!!  I am still unsure if an explanation is required and how to explain electronically.

The loss was in our taxable brokerage account.

The wash was created by a purchase in my Roth account.

So... Two different accounts (at the same brokerage) were involved in the wash.  The brokerage was not aware of the wash and DID NOT  document the wash on our 1099.

I have documented the wash against the sale in our taxable account (as you appear to suggest, in the Capital Asset Sales Worksheet).

So, my 8949 DOES NOT match the 1099 received... by the amount of the wash.

Will this alone create problem with the IRS?  Do I need to somehow explain?  If so, how do I do that electronically in TT?

Thank you!!

[davidsson]

Answered by GROK...

No, this mismatch alone will not create a problem with the IRS. Your approach is correct and exactly what the IRS expects in this situation. Form 8949 exists specifically to let you reconcile (and explain) differences between what your broker reported on Form 1099-B and your actual taxable gain/loss. The IRS computer matching process is designed to handle these adjustments.

Why this is normal and not a red flag

• The wash-sale rule (IRC Section 1091) applies across all your accounts, including your Roth IRA. Selling at a loss in your taxable brokerage account and buying substantially identical securities in your Roth IRA within the 61-day window triggers a wash sale.
• Brokers are only required to track and report wash sales within the same account (same taxpayer ID and account type). They do not see or report purchases in a Roth IRA, so your 1099-B correctly shows the full loss with no entry in Box 1g (wash sale loss disallowed).
• You must manually disallow the loss on your return. Revenue Ruling 2008-5 confirms that when the replacement shares are bought in an IRA/Roth, the loss is permanently disallowed (it is not added to the IRA basis).

By reporting the sale proceeds and original basis exactly as shown on the 1099-B, then making the proper adjustment on Form 8949, you are doing precisely what the IRS instructions require. The totals on your Schedule D will differ from the raw 1099-B totals, but the adjustment explains why.

How to handle it on Form 8949 (what you already did correctly)

• Report the sale on Form 8949 exactly as it appears on your 1099-B (proceeds in column d, basis in column e).
• In column (f), enter code W.
• In column (g), enter the amount of the disallowed wash-sale loss as a positive number. This reduces your reported loss (or turns it into a gain) by exactly the wash amount.

You do not need to attach any extra statement or explanation unless the amount you enter in column (g) is less than what the broker showed in Box 1g (which is not the case here—your broker showed $0).

How to do this electronically in TurboTax

TurboTax handles this very well once you tell it about the adjustment. Here’s the easiest way (works whether you imported the 1099-B or entered it manually):

1. Go to Wages & Income → Investments and Savings → Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
2. Edit the specific sale that had the wash (the one from your taxable account).
3. After entering the proceeds and cost basis (exactly as on the 1099-B), look for the section labeled something like:
   • “I need to adjust my total cost basis” or
   • “Adjustments to gain or loss” or
   • “Other adjustments” / “Wash sale”.
4. Check the box for wash sale (or select adjustment code W — “Nondeductible loss from a wash sale”).
5. Enter the full amount of the disallowed loss as a positive number in the adjustment field.
6. Continue through the rest of the interview. TurboTax will automatically:
   • Put the transaction on Form 8949 with code W in column (f) and the positive adjustment in column (g).
   • Carry the corrected net amount to Schedule D.

If you have many transactions and are using the summary method for the rest of your 1099-B, enter this one (or any wash-sale) transaction individually on Form 8949 first, then subtract the wash total from your summary amounts when you enter the rest. TurboTax walks you through this.

No extra “explanation” screen or attachment is required for e-filing in this standard IRA-triggered wash-sale case. The code W plus the adjustment amount is the IRS’s built-in explanation.

One quick note for your records (not for filing)

Keep your own documentation (trade confirmations showing the taxable sale + the Roth purchase dates and amounts) in case you are ever selected for review. Audits on this are rare when the Form 8949 is filled out correctly.

You’ve already done the hard part correctly. Once you make the adjustment in TurboTax, your return will be fully compliant. This is a very common situation, and the IRS sees it all the time. You’re good to go!