Cost basis information

[douglasjia]

I have a general question about how Robinhood calculates cost basis. Suppose in 2021, I sold the stock (cost basis $10K) I bought for $6K; then I bought it back within the same day for the same price ($6K). It triggered the disallowed wash sale and I cannot claim this loss in 2021 tax return. So, if I finally sold the stocks in 2022 (do not buy it back to avoid the wash sale), will the cost basis for this sale $6K or $10K?

I read some articles saying that: "You can't use the loss on the sale to offset gains or reduce taxable income. But, your loss is added to the cost basis of the new investment. The holding period of the investment you sold is also added to the holding period of the new investment. In the long run, there may be an upside to a higher cost basis—you may be able to realize a bigger loss when you sell your new investment or, if it goes up and you sell, you may owe less on the gain. The longer holding period may help you qualify for the long-term capital gains tax rate rather than the higher short-term rate." (source: https://www.fidelity.com/learning-center/personal-finance/[product key removed]-tax)

I want to know, is the above true (I am kind of confused as Robinhood customer service said the contrary, i.e., Robinhood will use 6K as the cost basis)? Will Robinhood automatically add my loss to the cost basis of the new investment? Or I have to add it by myself?

Thank you!

[tagteam · Accepted solution]

The disallowed loss ($4,000 in this instance) will be added to the basis of the replacement shares. 

[douglasjia]

Thanks for the answer! Two follow up questions:

1. Will Robinhood automatically add these losses to the new cost basis? 

2. If I transfer these stocks from Robinhood to another brokerage in-KIND, will the adjusted cost basis (10K, not 6K) be passed to the new brokerage? I'd like to transfer my stocks out of Robinhood, but concerned that it will make my tax situation complex.

[tagteam]

With respect to your first question, read through the following thread.

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/wash-sale-loss-disall...

With respect to your second question, that might depend upon the brokerage firm. Personally, on one instance in the past when I transferred some shares in-kind, the receiving brokerage firm reported the basis as N/A. Conversely, on another instance, the new brokerage firm managed to report the correct basis after the transfer.