generally, wash sales loss only applies to the same number purchased. sell 100 at a loss and purchase 10, then only a portion of the loss will be added to the shares purchased but it may or may not be 1/10 the loss. say you use FIFO for the method determining which shares are sold. so say you purchase 10 shares for $10 to which a wash sale on 10 shares of say $90 is added. basis of those 10 shares is now $100. also say later you purchased 90 shares for $180 to which a wash sale on 90 shares of $135 is added. basis of those 90 shares is now $315
the total basis for the 100 shares is now $415.
say you sell the 100 shares for $50 loss is $365 (10 shares loss $95 $5 - $100 and 90 shares $270 $45 - $315). say you buy 50 shares within 31 days creating another wash sale but only on 50 shares. if your method of accounting is FIFO the wash sale loss to add is
$95 for 10 shares
and $120 for 40 shares ($270 * (50 -10)/90
so at this point, you have an allowable loss of $150 ($270 * 50/90)
which is the same as the loss of $365 less the wash sales amounts of $95 and $120
if you were using LIFO the wash sale amount would be $270 * 50/90 =$150
as you can see multiple trades can create a huge problem in calculating and reporting wash sales especially when multiple trades are made the same day and in multiple accounts. this is why many day traders, who qualify, make the mark to market election IRC 475 (f). you lose capital gain treatment but the wash sale rules do not apply to those who properly make the election.
here's info on the election
Traders
Special rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader doesn't maintain an inventory and doesn't have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions:
You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
Your activity must be substantial; and
You must carry on the activity with continuity and regularity.
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
Typical holding periods for securities bought and sold;
The frequency and dollar amount of your trades during the year;
The extent to which you pursue the activity to produce income for a livelihood; and
The amount of time you devote to the activity.
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor. A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders don't apply to those securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
Traders report their business expenses on Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business (Sole Proprietorship) PDF. Commissions and other costs of acquiring or disposing of securities aren't deductible but must be used to figure gain or loss upon disposition of the securities. See Topic No. 703, Basis of Assets. Gains and losses from selling securities from being a trader aren't subject to self-employment tax.
The Mark-to-Market Election
Traders can choose to use the mark-to-market rules, investors can't. If a trader doesn't make a valid mark-to-market election under section 475(f), then he or she must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets as appropriate. When reporting on Schedule D, both the limitations on capital losses and the wash sales rules continue to apply. However, if a trader makes a timely mark-to-market election, then he or she can treat the gains and losses from sales of securities as ordinary gains and losses (except for securities held for investment - see above) that must be reported on Part II of Form 4797, Sales of Business Property. Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.
A trader must make the mark-to-market election by the original due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. You can make the election by attaching a statement either to your income tax return if filed without an extension or to a request for an extension of time to file your return. The statement should include the following information:
That you're making an election under section 475(f);
The first tax year for which the election is effective (that is, the tax year for which a timely election is being made); and
The trade or business for which you're making the election.
Refer to the Instructions for Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses for more information on how to make the mark-to-market election. It's important to note that in general, late section 475(f) elections aren't allowed.
After making the election to change to the mark-to-market method of accounting, you must change your method of accounting for securities under Revenue Procedure 2019-43, Section 24.01. In addition to making the election, you'll also be required to file a Form 3115, Application for Change in Accounting Method. Publication 550 describes the procedures for making an election under the section called "Special Rules for Traders in Securities." Non-filing of the Form 3115 mentioned above won't invalidate a timely and valid election.
If you've made a valid election under section 475(f), the only way to stop using mark-to-market accounting for securities is to file an automatic request for revocation under Revenue Procedure 2019-43, Section 24.02. Under that revenue procedure, the request for revocation must be filed by the original due date of the return (without regard to extensions) for the taxable year preceding the year of change (the year of change is the first taxable year the revocation is to be effective). This revocation notification statement must be attached to either that return or if applicable, to a request for an extension of time to file that return. Late revocations won't generally be allowed except in unusual and compelling circumstances
if you make the 475(f) election for 2022 it has to be filed with your timely 2021 return or extension. This requires paper filing.
