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Why does Turbo Tax double count the wash sale disallowed loss, while Fidelity already included it in the cost basis?

 
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1 Reply
rjs
Level 15
Level 15

Why does Turbo Tax double count the wash sale disallowed loss, while Fidelity already included it in the cost basis?

It sounds like you must have actually had three transactions involving the same security. One was the actual wash sale itself, in which the security was sold at a loss, and part or all of the loss was disallowed. That means you cannot claim the full amount of the loss on that sale.


For that to have been a wash sale, you must have bought the same security within 30 days before or after the wash sale. The shares that you bought are called "replacement shares" for the shares that you sold in the wash sale. The purchase of the replacement shares does not appear on your 1099-B or your tax return, but the purchase is what makes the first sale a wash sale.


Finally, it seems like you must have later sold the replacement shares. The disallowed loss from the wash sale is added to the basis of the replacement shares when they are sold. That reduces your gain, or increases your loss, on the sale of the replacement shares. In effect you get to claim the disallowed loss from the wash sale when you sell the replacement shares. The disallowed loss is added to the basis of the replacement shares, not to the basis of the shares in the wash sale.


The disallowed loss is not double counted. It reduces your loss on the wash sale, but it increases your loss, or reduces your gain, on the sale of the replacement shares. One offsets the other. It's a minus in one place and a plus in the other place. Adding it to the basis of the replacement shares offsets the original disallowed loss, so you come out even.

 

If you made more than three transactions for the same security the situation is probably more complicated.

 

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