When the only eligible replacement shares for a wash sale basis adjustment have already been adjusted, are they adjusted again? Or is the loss allowed?
Example:
Suppose this is the entirety of my trading activity.
- Day 1: buy XYZ $10 -> LOT 1
- Day 2: buy XYZ $20 -> LOT 2
- Day 3: sell XYZ $10 <- LOT 2 -- $10 disallowed loss increases LOT 1 basis to $20.
- Day 4: buy XYZ $20 -> LOT 3
- Day 5: sell XYZ $10 <- LOT 3 -- ?? is LOT 1 adjusted to $30, or is the loss allowed??
Note that when selling I am electing to use the specific lots: lots 2 and 3. Lot 1 is never sold. On day 6, what is my loss, and what is the cost basis of LOT 1?
A straight reading of the rule implies the second loss is disallowed, and the basis of LOT 1 is adjusted twice, and this is what I'm betting happens. However, I've encountered sources that say that an already-adjusted lot is ineligible for adjustment.
There is a related question here, but the whole FIFO accounting method doesn't seem relevant here -- I am explicitly keeping track of the individual lots I buy and sell; and in any case I didn't get a clear answer.
I'd appreciate it if someone could give a definitive answer here.