Another wash sale question

[stoikovmilen]

Hello!

I bought 200 shares back in 2021 at cost basis of $2697.66. Then in December of 2023 the shares have dipped quite a bit but started to bounce back. I sold them all for proceeds of $751.98 while hoping to buy  more back on the dip. I then purchased 210 shares(10 more than I had) of the same shares on the dip with the proceeds. 

Now my 1099-b treats the transaction as a wash and it considering my loss of 2697.66-751.98=$1945.68 as a gain. Once the e*trade transaction was imported I had to pay capital gain stock on $1945.68, which appears onbox 1g - wash sale loss disallowed.. Why would I have to pay $400 in taxes if I lost $1945.68?

This is also the case on several other transactions and capital gain taxes add up to over $800.

[DianeW777]

Likely because you purchased the same stock back with in a 60 day window.  Please see the wash sale rules below to see if your wash sale is still pending.

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.

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.

[Spino]

Wash sales are one of the harder things for reporting. In this case, you are saying that your 1099-B is wrong. That is certainly possible. You have the records and we don't, so let's just assume you're right....

You have two options. First, you can try to get your broker to issue a corrected 1099-B. Sometimes the errors are systemic and they do that without asking once they find the problem. Sometimes you will have no luck at all.

You can still report the correct information. However, you will want to carefully document what is wrong and what is right (instead.) Note that in the TT interview there is a specific question asking if any of the information on your 1099-B is wrong.

The other possibility, of course, is that you actually had a wash sale and your brokerage correctly reported that.

From google: "The wash sale rule prohibits taxpayers from claiming a loss on the sale or other disposition of a stock or securities if, within the 61-day period that begins 30 days before the sale (generally, the trade date) or other disposition, they: Acquire the same or “substantially identical” stock or securities;..." sourced from https://privatebank.jpmorgan.com/nam/en/insights/wealth-planning/for-your-year-end-tax-planning-bewa.... So basically if you sell stock (etc.) at a loss and rebuy it within 30 days before or after, your loss is deferred until you sell the subsequent purchase. You didn't lose the loss because it gets transferred to the new position, but you don't claim it on the sale in question. It's called a "wash" because you don't get a gain or a loss on that first sale, i.e., it all comes out "in the wash ;-)".

[stoikovmilen]

Yes, a wash by definition would be a great outcome for me as I am not trying to report a loss.  I just dont understand why I am paying a gain tax of $400 on a loss of $1945

[Mike9241]

when you have a wash sale the loss is disallowed (IRC 1091) and it is added to the tax basis of the substantially identical securities (SIS)  that created the wash sale (exception: no adjustment if the SII are purchased in an IRA). Otherwise selling the SIS and not purchasing SIS in the 60 day window results in recognition of that disallowed loss. 

[stoikovmilen]

Apologies, but not sure how that translates to my case. Most of the responses quoted the rules without specifying how they apply to my case, while was hoping if someone can confirm that I should be paying gain tax on a wash sale with a loss and if not, how it needs to look on the TurboTax?

[fanfare]

"I had to pay capital gain stock on $1945.68, which appears onbox 1g - wash sale loss disallowed."

@stoikovmilen 

a wash sale has a loss , not a gain.

you don't pay capital gain on col (g)

you deduct loss on proceeds - cost ( adjusted by Col (g) which is positive )

Your wash sale is triggered by buying certain shares.

You can recover a deduction for that disallowed loss when you dispose of exactly those triggering shares.

When the shares are disposed will depend on the ordering rules (LIFO, FIFO, etc) you setup with your broker.

The broker is required by IRS  to track this all for you.

[fanfare]

are you still holding the 210 shares you bought back waiting for them to go up?

If so, that's why.

@stoikovmilen 

[dmertz]

The amount of the disallowed loss became part of the cost basis of the repurchased shares.  That increase in the cost basis of the repurchased shares above the repurchase price will reduce the taxable amount when you sell the shares.

For example if you sold XYZ at a loss and you repurchased XYZ at the same price within 30 days of the sale, you would not be able to claim the loss but also your cost basis would remain unchanged, as if you never sold the shares.

[stoikovmilen]

Yes, I kept the 210 shares.  So are you saying that I need to pay $400 gain tax on my loss, and whenever I sell the 210 shares, I will get it back the $400 tax, if I sell them for the purchased price of $2700? Hence, then it will be a wash? 

[Spino]

No, you don't have a gain on your loss. You just carry over the loss until when you sell (and don't rebuy within the 61 day window--30 before and 30 after.) A lot of the other things people are mentioning apply to wash sales in different circumstances, but not necessarily to your situation.

It sounds like you still have questions though about the taxes on your investments. The best way to get those answered might be to print out your 1099-B (or 1099 combined) and also your statements for the year and go over them with someone who "gets it."

Alternatively, you could call up customer service or your representative (if you have one) at your financial services company and they might answer your questions. Sometimes, though, they say something along the lines of, "ask your tax adviser."

[rf_ee]

Did you find an answer to your question? I had a similar problem and the brokerage (Etrade) sent me a corrected 1099B in June. I entered the correct numbers from that 1099B by hand and it solved the problem

[alshi]

Can I sell the SIS with the high adjusted cost base in the same year?
In other words

For example,
(1) I sell stock A for a $100 loss. (I held A for years)
(2) A week after, I vest more RSUs of A and (3) immediately sell at the same price I bought it. Because of the adjusted cost base, the second sale has an adjusted loss of $100.
(4) Then I sell an unrelated stock 'B' at a gain of $100.
Overall the net gain/loss is $0.

Can all this happen in the same year?

[fanfare]

Yes.

assuming the number of shares involved of A are the same, sale of the triggering  stock A in your example brings the deferred loss to the fore.

However,  this does not absolve you of your obligation to include details of  "wash sales" on Form 8949.

@alshi 

[alshi]

Why does the number of stocks matter?