Wash Sale & Cost Basis Adjustment

[Jun1023]

Can someone explain what happens in the following scenario? I've read up on the wash sale rule, but it's still confusing in the instance that you don't repurchase shares after your sell.

1) Jun 1st: Purchase 100 Shares of Stock ABC at $100, total 10,000
2) Jun 15th: Sell 70 Shares of Stock ABC at $80, total 5,600; loss of $1,400. (Wash sale activated due to recent purchase & sell, thus cannot deduct this loss of 1400)
From what I understand, the cost basis of the leftover 30 shares is increased. How much is the cost basis increased by?

Assuming price remains at 80/stock of ABC,
What happens if I sell another 20 stock of ABC before June 30th?
What happens if I sell all my leftover 30 stock before June 30th? Will I be able to deduct any of the losses?

Thanks!

[fanfare]

you are definitely confused.

your 1) buy 2) sell  in a short period of time (15 days) is not a wash sale.

You did not buy other identical shares around the window of your sell date.

[rjs]

You don't have a wash sale. The shares that you still own are not replacement shares. See the discussion at the link below. Example 2 is your situation.

Wash Sales and Replacement Stock

[Jun1023]

Thank you for the reply.

Perhaps my sales are getting flagged because of a situation more similar to #3:

3: Separate Purchases

You buy 100 shares of XYZ in the morning, and decide to buy another 100 shares in the afternoon of the same day. Within 30 days, you sell the morning shares at a loss.

For all we know, the price of this stock dropped between morning and afternoon, and your afternoon purchase is for the purpose of claiming a loss while maintaining your investment. In other words, you may have been trying to get the result the wash sale rule is designed to prevent. So the IRS will probably contend that the wash sale rule applies in this situation.

The result should be different, though, if you gave a single buy order for 200 and your broker happened to execute it by buying two lots of 100 shares each. In this case it’s clear the shares you have left after the sale weren’t bought to replace the shares you sold.

To modify the scenario above,

1) Jun 1st AM: Purchase 100 Shares of Stock ABC at $100, total 10,000

2) Jun 1st PM: Purchase 100 Shares of Stock ABC at $100, total 10,000
2) Jun 15th: Sell 100 Shares of Stock ABC at $80, total 8,000; loss of $2,000. (Now wash sale applies, and you have 100 shares left)

What happens to cost basis at this point?

What happens if I sell the rest of the 100 shares, do I get to claim a loss or will it all be counted as a wash sale and also no cost basis adjustment?

More broadly, what should I do? 

Thank you!

[rjs]

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@Jun1023 wrote:

What happens to cost basis at this point?

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The $2,000 disallowed loss is added to the basis of the remaining 100 shares. So the basis of the remaining 100 shares is now $12,000.

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@Jun1023 wrote:

What happens if I sell the rest of the 100 shares, do I get to claim a loss or will it all be counted as a wash sale and also no cost basis adjustment?

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If you sell the remaining 100 shares at a loss, and do not buy any other shares of ABC within 30 days before or after the sale, it is not a wash sale. You will claim the loss, based on the $12,000 basis. If you sell at a gain, of course, you pay tax on the gain. But the gain is based on the $12,000 basis, not the original $10,000 purchase price, so your taxable gain is $2,000 less than it would have been if you did not have the wash sale.

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@Jun1023 wrote:

More broadly, what should I do? 

It's not clear what you have actually done, so it's hard to say what you should do. If you have already sold some shares, and are holding remaining shares, you should decide whether to sell or continue to hold the remaining shares based on how you think the stock will perform. To avoid further complications, if you sell the remaining shares, you should not buy any shares of ABC within 30 days before or after the second sale.

If you have further questions, you will get a more accurate and useful answer if you tell us your actual situation, instead of a made-up or simplified scenario.

[elbee]

this seems like a good thread to ask my question on a wash sale my broker applied to a recent purchase following a previous sale... 

1.  i own(ed) 500 shares purchased on different dates and prices over the past 18month.  most recent purchase was over 6 months ago

2. on sept. 1, i sold 200 shares at a loss

3. on sept 28, i sold 100 shares at a loss

4. on oct. 16 (45 days after the sept. 1 sale), i bought 200 shares -- yes, to "replace" the 200 shares sold on sept 1.  when buying shares there is no concept of specifying replacement shares. share specification is a concept only applied to shares sold (in my case, first in, first out was applied)

5. my broker is calling this a wash sale triggered by the purchase being less than 30 days from sale on sept. 28.

6. i'm still trying to figure out what loss amount was applied to the share purchase on oct. 16, but to my mind, the oct. 16 purchase is not vs. the sept. 28 sale but is against the sept. 1 sale..

thoughts, please??

thank

[Anonymous]

Your broker is absolutely correct. 

you sold 100 shares at a loss on 9/28

the 10/16 purchase triggered the wash sale.  it's not the order that counts.  the wash sale rule applies to any purchase of the same security within 31 days of a loss sale of the same security.  so the 9/28 loss is disallowed and that loss is added to 100 shares purchased on 10/16.   maybe online access will allow you to see the cost basis for each purchase, if not the monthly statement for October should give details.  what you should see for the 10/16 purchase is what the trade confirm shows as the cost + the amount of the 9/28 wash sale loss. - maybe the broker will break it down into 2 purchases of 100 shares with 100 having 1/2 the original cost and the other 100 having the original cost + the loss  

[fanfare]

replacement is a misnomer.

You purchased identical or substantially identical securities, within the time window.

[elbee]

thanks.. the broker only shows the cost basis for the 200 share purchase but i ran the numbers and it is correct.  thanks for setting me straight on that... dumb mistake with that second sale.. lesson learned.

[fanfare]

@elbee 

as you pointed out the Oct 16 purchase was 45 days after sept 1 so the sept 1 sale is unaffected.
you have a loss on the 100 sept 28 shares that is a wash sale loss because 200 share is equal or greater than 100 shares.
that loss is added to the basis of the 200 Oct 16 shares.

also as you pointed out, there is no concept of replacement shares.

[Anonymous]

please note that it's just 100 shares of the 200 you purchase that has an increased basis for the wash sale.  (because the wash sale was only for 100 shares) 

[fanfare]

@Anonymous 

I don't thinks so.

Exactly which one hundred of the two hundred, purchased at once, would that be ? ?

[Anonymous]

it will be the 1st 100 of the 200 that you sell.   however, if these are sold at a loss and within 31 days of this sale you purchase 100 shares of the identical security, you'll have another wash sale. 

now here's is what the IRS allows

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/stocks-options-splits-traders/stocks-...

Question
How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?
Answer
The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. When selling securities, you should be able to identify the specific shares you are selling.

If you can identify which shares of stock you sold, your basis generally is:

What you paid for the shares sold plus any costs of purchase.
If you can't adequately identify the shares you sold and you bought the shares at various times for different prices, the basis of the stock sold is:

The basis of the shares you acquired first, then the basis of the stock later acquired, and so forth (first-in first-out). Except for certain mutual fund shares and certain dividend reinvestment plans, you can't use the average basis per share to figure gain or loss on the sale of stock.

so if you want to dispose of these specific wash sale shares (when you hold shares acquired at an earlier date) you must inform the broker that you want to sell 100 shares from the lot purchased on ........ 

otherwise, the broker will use the fifo basis 

on other thing is that when there is a wash sale the holding period tacks on

example 100 shares purchased 10/30/2020

100 shares sold 10/25/2021 at a loss - short term loss

100 shares purchased 11/15/2021 wash sale resulting in disallowance of ST loss of shares sold on 10/25/2021

100 shares sold 11/30/2021 the holding period from 10/30/2020 resulting in long term gain or loss

provided if a loss 100 shares of identical security not purchase within 31 days 

this is just an FYI since the broker will handle it correctly.

[elbee]

it will be interesting to see what happens  if i sell just 100 shares from that 200 lot purchase.. which was purchased as  a single transaction.  i need to have a conversation with the broker and find out what their system will do.. i agree... the deferred loss should be applied to  the sale of  the first100 shrs.. 

thanks all for this discussion.

[fanfare]

I disagree. one half of the disallowed loss will be resolved in  a sale of 100 of the 200.

Ask your broker and let us know.