Capital Gains Calculation

[josiah316]

I am new to trading stocks in an investment account.
According to my 1099-B summary of stock market trading this year, I traded for (numbers are rounded for convince)
Proceeds: $73,500
Cost Basis:$70,300
Wash Sale Disallowed: $5,000
Realized Gain: $8,000

I just found out about wash sales are "disallowed" 
My Questions are:
1.)What does this mean for my taxes?
2.)Roughly, how much should I expect to pay on my 8,000 of realized gains.
*Assume married, filing jointly with an income of 140k
I

[MinhT1 · Accepted solution]

The IRS says:

Nondeductible wash sale loss.

If you received a Form 1099-B, box 1g will show the amount of wash sale loss disallowed if:

• The stock or securities sold were covered securities, and

• The substantially identical stock or securities you bought had the same CUSIP numbers as the stock or securities you sold and were bought in the same account as the stock or securities you sold.

However, you cannot deduct a loss from a wash sale even if it is not reported on Form 1099-B.

Disallowed losses on wash sales will increase your capital gains for the year.

As for the tax on capital gains, it depends whether these gains are short-term or long-term, which depends on how long you held the stock before selling it.

Please read this TurboTax article for more information.

[josiah316]

Thank you for your quick reply,

All of these trades would all be short term (<1year). Under these circumstances what kind of tax bill should I expect on these $8,000 of gains?

"Disallowed losses on wash sales will increase your capital gains for the year."

Can you elaborate on this statement? 

[DianeW777]

Yes, any losses associated with wash sales during the year must be added to the cost basis of the stock involved in the wash sale. For this reason those losses are not allowed to offset other gains and therefore increases your taxable capital gain. 

Once the stock is completely disposed of, that stepped up basis will be used against the selling price. 

Depending on your taxable income the rate is graduated for the IRS.  Because all of your sales are short term, the gain will be taxed at your ordinary income tax rates.  You can see the rate schedules for 2020 at this link: 2020 Federal Tax Brackets

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.

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 increase the cost basis with the unallowed losses. 

Be sure to keep good records so that you know when to add those losses for future sales.

[Mike9241]

I am new to trading stocks in an investment account.
According to my 1099-B summary of stock market trading this year, I traded for (numbers are rounded for convince)
Proceeds: $73,500
Cost Basis:$70,300
Wash Sale Disallowed: $5,000
Realized Gain: $8,000

this does not make sense on the face of it.  if the sales price is more than the cost there's a gain and you don't have wash sales on gains. however, you need to check to see if the broker combined multiple transactions in the amounts. then it would be possible to have wash sales on some but not all the transactions.  we can't see the documents or know what you did for the year.

if this is reporting multiple transactions then your sales price is $73,500

cost is $70,300

there is a disallowed wash sale loss of $5,000

so the tax gain should be $73,500-70,300+5000 or 8.200

in actuality the IRS wants each separate trade reported. so if this is say the combination of 5 sales, 5 separate sales need to be reported.  the only exception to separate reporting are those of types A & D where there are no wash sales or other adjustments. in those cases, type A totals can be entered as a single line. the same for type D.