Wash sale - Dissallowed loss reported higher than adjustment

[sourabhguha]

Hi,

I have the following scenario

3/8 - Bought 3 shares of MSFT - Adjustment to cost basis - 136$

3/25 - Sold 15 shares of MSFT. Wash sale dissallowed loss - 476$

3/30 - Bought 4 shares of MSFT - Adjustment to cost basis - 95$

Fidelity right reported 3/25 as a wash sale. The triggering transactions were the buys on 3/8 and 3/30. However, there is a discrepancy in the wash sale dissallowed loss and the adjustment made the cost basis for the triggering transaction. They do not add up. I believe this is because of the discrepancy in the shares sold and bought.

Should I update the dissallowed loss while reporting my taxes to match the adjustment that Fidelity made to the cost basis for the buy transactions?

Thanks,

[Mike9241]

talk to fidelity for an explanation. they have info you have not provided. . one is the fact you sold 8 more shares than what you show you owned.

example

3/8 bought 3 at $120 =$360

3/30 bought 4 at $100 = $400

3/25 sold 3 at $75 loss on 3/8 purchase $45*3 = $135

3/25 sold 4 at $75 loss on 3/30 purchase $25*4 =$100  

where the other 8 shares are we don't know. only Fidelity can tell you what happened. 

however, purchases would include any shares acquired by dividend reinvestment  during the wash sale period which would be 2/23/2022 through 4/24/2022

[dmertz]

What cost-basis method is being used on your brokerage account?

The share price of MSFT on 3/25/2022 was between $299.29 and $305.50.  A loss on that sale of $31.73 per share seems to imply that most of the shares that were sold were purchased near MSFT's all time high in late  2021 or early 2022.

[fanfare]

"Should I update the dissallowed loss while reporting my taxes"

I recommend you report exactly the SELL transactions  shown on your 1099-B supplied to you in February,

copy of which goes to the IRS.

Transactions with adjustments i.e. wash sales, have to be itemized on Form 8949, or equivalent.

@sourabhguha 

[sourabhguha]

@fanfare - If I report the disallowed loss as is, then wouldn’t I be reporting a greater gain. Essentially, I sold more stocks than the number that was bought. 

[sourabhguha]

@Mike9241  - that’s correct. I had a higher balance of shares in the account to begin with. So, I happened to sell more shares than what I bought. 

[Mike9241]

say 1 year ago you bought 15 shares of MFST that you sold at a loss on 3/25

during the 30-day period before and after the sale you bought only 7 shares. then the wash sale rules would only apply to 7 shares and that loss would then be added pro-rata to the 3 shares purchased on 3/8

and the 4 shares purchased on 3/30. the loss on the other 8 shares should be allowed since apparently there were no replacement shares acquired. however, there are outside possibilities. if you had an IRA account with Fidelity and bought 8 shares of MSFT during the 61 day wash sale period, then the wash sale applies to the 8 shares in the iRA. you get no adjustment to basis for the iRA shares. that loss is permanently lost. if you were married and your spouse had a separate account at Fidelity and bought 8 shares of MSFT during the wash sale period, the wash sale rule would apply to those 8 shares. 

if not contact Fidelity. they are the only ones who can accurately answer your question.  

[sourabhguha]

Thanks @Mike9241 . I have no other MSFT transactions in my or my spouse other accounts. It seems I just need to apply the disallowed loss for the replacement shares and should be able to the take the loss on the remaining? I’ll ask Fidelity tomorrow on why they reported the entire loss as disallowed. 

[dmertz]

Good point about the disallowed loss being with respect to only 7 shares, not 15 shares.  That would mean a disallowed loss of $68 per share which doesn't make any sense.  To have than much of a loss per share at a sale price of no less than $299 on 3/35/2022 you would had to have purchased shares at at least $367 per share, which is higher than MSFT has ever been.

[Mike9241]

you have to contact fidelity. if they report to the IRS the wash sale loss as you indicate and you change the amount expect a notice from the IRS changing the loss back to what fidelity reported with possibly a bill for additional taxes. get it done now before it files the reporting forms with the IRS 

[sourabhguha]

@Mike9241 . Yes - I will be contacting Fidelity about it. Btw, when I enter the disallowed loss, the TT help article does mention that the broker may not report the disallowed loss correctly and that it is your responsibility to core it if required- just saw this now. 

[Mike9241]

the issue is the number you report while correct will not match the number the IRS gets. that will likely cause the IRS computers to generate a notice. you can refute this by time responding to the notice and providing documentation that proves to the iRS that you are correct.  do you really want to go through such a hassle especially if you're due a refund?    an issue such as this can delay any refund for months because your response must be manually processed.  another problem is trying to prove Fideliity wrong 

[sourabhguha]

It turns out that Fidelity is reporting it correctly - with a caveat. The reason, it causes a confusion is because when I did the share recapture - it was a higher number which was sold at a later date. However, when Fidelity does the reporting it does not use the original acquire date. It changes the acquire date for the shares. I don't what algorithm is used to change the acquire date. At any rate, I was able to account for the disallowed loss. This was resolved by opening a ticket against their cost basis team. Regular CSS agents were not able to explain it.

@Mike9241  Thanks for your suspicion. It would have been quite unlikely that Fidelity got it wrong. However, their reporting caused the confusion. 

[Mike9241]

Fidelity got it right. they are correct in not only adding the wash sale amount to the replacement shares but the holding period of the shares that causes the wash sale tacks on to to the replacement shares.