Wash Sale on 1099-B

[Beaker12]

I have a question relating to entering a 1099-B into Turbo-tax that includes a wash sale. The transaction is 

Proceeds = $13500

Cost Basis = $13000

Box 1 G = Code W (Wash Sale Disallowed) $250

After I entered all the data, the summary line for this entry shows the wash sale ($250) under the Adjustment column and it shows a total Gain of $750. From what I understand of the tax rules, the amount of the wash sale should be added to the cost basis of the shares that remain in the account after the sale. When I eventually sell those shares, I would get the benefit of the loss in the form of a higher cost basis. Therefore I would expect Turbotax to show a gain of $500 on this transaction, not $750. Why does TurboTax add the wash sale amount to the total gain? Thanks in advance for your responses.

[DaveF1006]

Wash sales are generally taxable income if there is a gain on the sale but the amount can be added to the basis to the remaining shares in your account. Your broker should be keeping track of these.

[Mike9241]

evidently, this seems like a multilot sale. where one lot had a gain and another had a loss

example sell one lot with proceeds of $6750 and tax basis of $7000. buy replacement shares within the 61 day time frame loss disallowed $250.  loss disallowed and added to cost basis of replacement shares

sell another lot with proceeds of $6750 cost basis $5750 to which the $250 wash sale loss is added. 

thus sales $6750 tax basis $6000 gain $750

or pur another way total proceeds $13500 total amount actually paid $12750  ($7000 + $5750) gain$750.

[Beaker12]

Mark,

Yes, this was a multilot sale as you suggested. It is an ESPP where I buy stock every month and then sell several months worth of purchases a few times a year. In 2021, there were two sales, both of which included some wash sale amount. What I can't wrap my head around is why the wash sale amount is added as if it was a taxable gain if it is also added to the cost basis. In your example below, I am thinking the 1099-B should show a cost basis of $13,000 because the wash sale would be added to the basis of other shares.  Maybe it is that I don't really understand what exactly the amount in box 1g represents. What would you expect to see on the 1099-B in your example?

[DianeW777 · Accepted solution]

Question: What I can't wrap my head around is why the wash sale amount is added as if it was a taxable gain if it is also added to the cost basis.

That simply means that you cannot offset a gain on other stock, should you have one, by using your wash sale loss.

• The wash sale loss is suspended until all the shares of that stock are disposed of without a repurchase of the same 30 days before or after the sale (60 day window). 

Do not use any of the wash sale loss, by using the same cost as sales price, it maintains the integrity of the wash sale by disallowing any loss on your tax return for the current tax year.  The loss is added to your cost basis of the shares you still hold which increases the cost basis to use at the time of full disposition/sale of the wash sale stock.  

Note:  It's important to keep good records because you want to take advantage when you dispose of the stock in this situation.  The broker will always know when a wash sale occurs, but they will not record or potentially know when it ends. This is completely left to you to maintain the records.

[Beaker12]

Thank you Diane, that helps my understanding. It helps to know that I need to keep rolling over these wash sales until the very end of the chain when there are no purchases or sales within 60 days. Before, I was thinking that the wash sale was rolled into the cost basis of the next shares you purchased, which would be the next month in my case. In my case, the end of the chain will likely be years away because I wouldn't want to give up the monthly employer match just to recognize the wash sale loss. 

[fanfare]

"Before, I was thinking that the wash sale was rolled into the cost basis of the next shares you purchased, which would be the next month"

If you make monthly purchases, you can trigger a wash sale be redeeming.

It is the earliest purchase within the +/- 30 day window  that is adjusted first. i.e. likely the previous or current month.

You will be getting the benefit of your adjusted basis sooner or later, probably later assuming First in First out reporting.

[ddeng62]

 "The loss is added to your cost basis of the shares you still hold which increases the cost basis to use at the time of full disposition/sale of the wash sale stock. "

@ DianeW777,

When the replacement shares are sold and their cost basis need to be increased by the disallowed loss (assume the broker did not adjust the cost basis for me), how should I adjust the cost basis myself in Turbo Tax (desktop)?  Thanks.  

[MarilynG1]

After entering your 1099-B info, Continue to a screen where you can indicate that the Cost Basis is incorrect.