Wash Sale and how to identify which shares are sold next

[GayleS03]

Looking for the rule on when you consider that you've sold the "replacement stock" from a wash sale. 

We have quarterly purchases of employer's stock. A sale in April, 2020 (of stock purchased in Q1/2019) at a loss became a wash sale since there was a 3/31/2020 quarterly purchase. For the very next sale (in May 2020), do I consider that I'm selling the (now) oldest shares (acquired Q2/2019) OR do I consider that I'm selling the replacement stock purchased 3/31/2020? (FIFO has been used. For this question, assume equal # shares bought/sold each time.)  I understand we'd use the original Q1/2019 purchase date for the holding period of the replacement stock, but can't find any info on how to sequence the sales when you're using FIFO. The math on the broker's 1099 B supplemental presentation appears to consider the replacement stock (bought 3/31/2020) to be the next batch sold. Any reference info would be most appreciated, too.....

[GeorgeM777]

A wash sale is essentially a disallowed loss.  Therefore, the disallowed loss is added back to the cost basis of the purchase that triggered the wash sale.  Thus, the disallowed loss would be added to the cost basis of the March 31st purchase, and the per share price would be adjusted accordingly.  

The FIFO method is appropriate as it typically is the default method used by firms.  If there are still shares to sell from the January 2019 batch, then use those shares as they would be "first in" and thus should be "first out."

@GayleS03

[GayleS03]

Thank you for the response to my question, and I agree with the logic you shared. However, the broker (Fidelity) provides a "supplemental" presentation that ties out to a different way (the "other" option in my original question). Using the argument that the replacement shares essentially now take on an acquisition date from the shares actually sold in the wash sale (thus are now the oldest), I tied out to the penny for both 2020 and 2021 to the Fidelity presentation. I spoke with their customer service team, and they assured me that I should use that "other" interpretation. I've searched high and low for concrete examples (IRS, tax training info and lots of other materials) and this one little nuance is not flushed out in anything I scoured. Thank you again....  Having feedback from the TT team is really a major benefit.  

[fanfare]

@GayleS03 

replacement stock is a misnomer, not used by the IRS.

purchase of identical shares triggers a wash sale.

it is the triggering purchased shares that are adjusted.

you realize any disallowed loss when those shares are sold.