If you have deferred capital gains losses due to wash sale rule can you ever claim it as a loss on tax returns? how long do you have to wait?

[procrastinato715]

Had sold some puts that got exercised but dont want to keep the stock, so sold within 30 days and incurred deferred loss.

[maglib · Accepted solution]

when you sell a put, you're selling someone the right, but not the obligation, to make you buy shares of a company at a certain price.  The put was excercised forcing you to purchase the shares from them.  you then sold the shares (Based on your post at a loss).  There should be no wash sale unless you then traded within that 30 day period after the losses the same or substantially identical shares.  The loss then would reduce the basis in the new shares you purchased or options trade you did.

The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so.

so the wash sale loss actually reduced the basis in the shares you subsequently then purchased or options within that security..

The IRS lets you take gains but always defers losses into basis of any substantially similar shares you trade in within 30 days....  so you would only be able to take the loss if you didn't trade within 30 days of incurring the loss. So if you ever have losses, you want to take them, don't trade in that stock again for at least 31 days.

[procrastinato715]

helpful, thanks.  After the put was exercised, I owned the shares. Then I sold them. I did NOT buy any identical security within 30 days. still the loss from selling shares is registered as deferred loss by Etrade. When i asked them, they send me wash sale rule description but it does not yet make sense to me

[fanfare]

a short put, an exercise and a sell,  if that is the entirety of it, does not sound like a wash sale to me. unless e-trade is treating a short put as an option to acquire shares.
in that case, your option cost should be increased on your statement, and/or your assigned stock basis adjusted by that updated premium.

[fanfare]

updated: option cost, not option premium. some brokers may report negative cost basis on options. TurboTax does not like that.

[maglib]

I would contact e-trade and ask them what substantially identical shares they assigned that they are claiming a wash sale?  Are you sure they didn't assign the wash sale to the options as the wash sale cost basis had to be assigned to something, they don't just report it, they move that to adjust cost basis in other securities.     Since it is a covered trade and reportable to the IRS, they should be able to substantiate their program and/or send a new 1099....   substantially identical could be very vague.  Are you sure there was no spinoff or any other transaction with the shares.  you should be able to go back to the sale date of the  securities and see what happened within your statement.  You can always adjust your basis and retain the records as proof.  I have had issues with e-trade prior where they have refused to adjust and then 6 months later they realized they erred....

[fanfare]

you must have identical shares purchased at some other time.
The basis in those shares has been adjusted up to compensate you for the inability to take the loss now.

[rajeshm]

Hi 

Was this resolved for you. I am similar issue where losses are tagged as deferred even I had not purchased or sold similar or same stock within 30 days in etrade.

Rajesh

[NCperson]

@rajeshm - are you looking at BOTH sides of the trade date? 30 days before AND 30 days after? 

[rogerlig]

TurboTax absolutely doesn't understand a sale before a purchase, and so messes up covered call selling, totally.

The only answer I've found, is to just enter the totals for gains and losses, without any supporting documentation.  If the IRS objects, then you can send them the 1099 forms to support your total figures.

[fanfare]

@rogerlig 

Date Sold must be on or after Date Acquired.

In order to close a short you must go to the market and acquire some securities.

Per IRS reporting instructions, the acquired date is the date you closed the short sale.
For Stocks, the disposed date is two business days later (settlement).
Options settle in one day.

When your trade shows a gain, Date Disposed is the same as Date Acquired.

Option write, expires:
Since you are short, the Date Acquired shows the date of expiration.

[rogerlig]

If you send TurboTax a 1099 that shows you sold before you bought back (options, in this case), a totally normal and frequently done strategy (not expired or executed, just bought back), TurboTax just can't figure it out.

TT call it an error, and wants you to change the dates so that sale happens after purchase, even though that's the opposite of what happens.

Yes, the IRS and the markets get this right.  TurboTax, on the other hand, doesn't allow you to report it correctly.