Wash Sales All Year Long

[joshua2063]

I have been trading quite often this year. I plan to do even more trading next year. I have exclusively trade options on SPY, QQQ, and DIA. I buy calls and puts everyday (sometimes multiple times a day i.e. pattern day trader) and later on the same day sell them, of course sometimes for a profit and sometimes for a loss. I end every day at market close with no open positions. 

I realize I am flagging wash sales all year long. I also realize that those losses are changing my cost basis and are more or less deferring those losses. Please correct me if I am wrong about those assumptions. I do plan to stop trading in the month of November just to try and get credit for losses for the year. The part that worries me is that in the wash sale rule it states "30 days prior", so even if I stop trading on any specific day in November, and even though I don't buy any more through the year I still bought some in the days leading up to my final trading day of the year in November that would definitely be considered a purchase within 30 days. And I am worried that this might cause problems for me (such as all wash sales being disallowed, or otherwise just not able to realize these losses at year end come time for taxes). I am not interested in changing my accounting method at this time, and I am not interested in changing my status to Tax Trader Status. 

So my questions is, if I day trade options, intraday all year long, flagging wash sales everyday until November the 23rd (note: I was trading everyday until that point, hence my concern with the 30 days prior) and then just close everything at the end of the day and don't trade anymore until January the 10th, what will be the tax ramifications of that? Will I still be able to realize or otherwise get credit for my losses throughout the year?

[Anonymous_ · Accepted solution]

The wash sale rule has an impact on losses and, basically, having open positions in substantially similar securities.

If, for example, you close all of your positions in November of 2022 (i.e., leave no open positions) and do not trade (do not open any new positions) until January 10th of 2023, you should have no wash sales.

[Mike9241]

perhaps it's more correct to say you still have the wash sales but because you have disposed of the securities causing these before year-end the suspended loss will be allowed.

if you qualify as a trader, you could make the mark-to-mark election in which case there are no wash sales in the trading account and you could also maintain an investment account that would still be subject to the wash sale rules but only for trades in that account.

who qualifies as a trader and does it make economic sense to make the election is something that if you are interested in should be discussed with a tax pro who can go over your entire tax situation. it makes sense for some not for others.

[Anonymous_]

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@Mike9241 wrote:

perhaps it's more correct to say you still have the wash sales but because you have disposed of the securities causing these before year-end the suspended loss will be allowed.

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It is actually more important, regardless of the phraseology, that the "wash sales" do not appear as such on the 1099-B (as they should not if properly reported).

[Mike9241]

sure they will. I have used different brokers and if I sold a security at a loss and then repurchased it during the wash sale period, that sale will be reported on the 1099-B as a wash sale. if I then sold the replacement shares before year-end and do not repurchase them during the wash sale period, the deferred loss will now be allowed but it will be reflected in the second sale. at least that's the way my brokers have reported them. there is a good reason. the holding period of the original shares in the wash sale tack on to the replacement shares so what could have been a short-term transaction could end up as a long-term transaction.

[joshua2063]

Thank you for verifying and confirming that. You saved me a lot of time and money. 

[fanfare]

In order to have "stopped trading", you must have closed out all your open positions in securities involving the wash sale rule.

this includes options that would expire in December or might be exercised, and triggering purchases which are carrying your loss.

Do this in early November or earlier and you will get to deduct your losses.

@joshua2063 

[fanfare]

If you go into Jan '23 with all your 2022 losses disallowed you could be in a heap of trouble.

[fanfare]

"that the "wash sales" do not appear as such on the 1099-B "

closing your triggering position does not relieve you of your reporting requirements for the wash sales, which are not going to vanish from your 1099-B.

@Anonymous_ 

[joshua2063]

I plan to exit all positions and cease all trading activity in late November until the beginning of January 23. Everyone else on this thread suggests this would allow me to realize these losses for this year. Why do you suggest that I need to do it in early November instead of late November?

[joshua2063]

Yes and that is a situation I am trying to avoid.

[joshua2063]

@fanfare I will reiterate and please tell me what you think. I plan to day trade options on SPY on a daily basis, buying and selling multiple times throughout the day, but closing all positions at the end of the day. I will be flagging wash sales all year. On November the 23rd I will close out of all positions and cease trading until January the 10th 2023. I will not open any new positions or conduct any more trading during that period. Will this allow me to realize or otherwise allow those losses which were considered wash sales throughout the year?  

[fanfare]

Early November is well away from the thirty day rule, and suggested just for safety.

If you want to go right up to the last permitted day, that's your call.

@joshua2063 

[Mike9241]

@joshua2063 safe is closing them out in November. but nothing prevents you from doing this in December with the caveat that

• When you close a short sale at a loss, the tax law treats the transaction as occurring on the settlement date.  

you also need to be aware of the substantially identical rule which can create wash sales. the IRS has never clarified this rule.  

[Anonymous_]

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@fanfare wrote:

closing your triggering position does not relieve you of your reporting requirements for the wash sales, which are not going to vanish from your 1099-B.

@Anonymous_ 

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I report what is reported to me on my 1099-B (consolidated) statements. I mistakenly sold JNJ at loss a few year ago and bought it back, not only within 30 days, but within the same week. I then sold the newly (newer) purchased shares later in the year (at a gain) and the "wash sale" never was reported on my consolidated statement; the trades were but there was no code for a wash sale.

@fanfare