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23for20
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Purchasing More of a Wash Sale

I learned the hard way with my first wash sale in 2021. Reluctantly hoping the stock would reverse, I have been holding the stock ever since. Now I am clearly stuck holding the bag. I originally thought I could use this as a tax write off until I was ready to let go of it, but now I am realizing a wash sale is in place to prevent this. 

 

I am willing to cut my losses at this point, but the stock is much lower than when I first purchased it and it is steadily going up. Will the broker/IRS consider me buying more (~2 years after wash sale requirements of 31 days) at a lower rate part of this wash sale or is this a good time to make up for my losses (assuming it continues to rise)?

 

What are the tax stipulations on taking a loss on an investment from 2 years ago that was considered a wash?  Is there any benefit to selling this before EOD since it was considered a loss?

 

I have seen a lot of post on "repairing" a wash sale, but I have not seen any in regard to buying additional shares after the fact. Thanks for the comments and for sharing any other suggestions/advice on what to do with this before end of year. 

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3 Replies

Purchasing More of a Wash Sale

@23for20 I think we need to go back and define a 'wash sale'.

 

1) when you sell a stock at a gain, there is no wash sale.

2) when you sell a stock at a loss, any purchase of that same or similar investment that occurs 30 days before the loss sale or 30 days after the loss sale (so a 61 day period), you can not report the loss on your tax return.  Rather the loss gets added to the cost basis of the remaining investment.

3) now we are two years later, so clearly beyond the 30 days period after the loss occured.  I am not clear if you are attempting to buy more or "cut your losses" and sell.  

4) if you buy more now, it has no impact on your cost basis of the lots you already own from two years ago.

5) if you sell some now, you are able to recoginize the losses on the shares you sell.  Remember that the cost basis has been adjusted from its original cost basis by the loss on the wash sale transaction of a few years ago.

 

would an example help? 

Purchasing More of a Wash Sale

@23for20 you presentlly hold shares with a tax basis higher than their market value. so you would incur a loss if you sold them. Thus the wash sale rule will be triggered if you buy additional shares either 30 days before the sale (trade sate) or 30 days after.  A wash sale can occur even if the original shares are sold in 2023 and additional shares are purchase in 2024 but within the 30 days.   

Purchasing More of a Wash Sale

A wash sale occurs when you take a loss but cannot deduct the loss on your Schedule D.

End of story.

 

What you do after that is separate.

If you still have shares of the same or other security at a loss you could generate another wash sale by selling those shares and repurchasing.

The order in which shares are sold defaults to First In-First Out, unless you make other arrangements with the broker.

 

@23for20 

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