1

I can see that the first row of the data shows $120.00 in cost and $76.93 in proceeds, which results a -$43.07 gain. With only this set of trades, how is it determined that $43.07 is the wash sale loss disallowed?

If not clear all 50 shares were sold at once on 11/10/2018 for a price of $25.65. Please help me understand the calculation involved with relevant trade dates. The wash sale in question is according to United States capital gains tax law.

Here is the data in copy/paste-able CSV format.

Stock,     Qunatity Sold, Date Acquired, Date Sold or Disposed, Proceeds,    Cost or Other  Basis, Accrued Market Discount, Wash Sale Loss Disallowed, Gain/Loss Amount
ACME,      3,             09/18/2018,    11/10/2018,            $76.93,      $120.00,              $0.00,                   $43.07,                    -$43.07
ACME,      2,             09/18/2018,    11/10/2018,            $51.30,      $80.00,               $0.00,                   $0.00,                     -$28.70
ACME,      5,             09/25/2018,    11/10/2018,            $128.25,     $203.80,              $0.00,                   $0.00,                     -$75.55
ACME,      5,             10/09/2018,    11/10/2018,            $128.25,     $187.50,              $0.00,                   $0.00,                     -$59.25
ACME,      3,             10/19/2018,    11/10/2018,            $76.95,      $148.07,              $0.00,                   $0.00,                     -$71.12
ACME,      2,             10/19/2018,    11/10/2018,            $51.30,      $70.00,               $0.00,                   $0.00,                     -$18.70
ACME,      10,            11/02/2018,    11/10/2018,            $256.49,     $210.80,              $0.00,                   $0.00,                      $45.69
ACME,      10,            11/06/2018,    11/10/2018,            $256.49,     $230.00,              $0.00,                   $0.00,                      $26.49
ACME,      10,            11/08/2018,    11/10/2018,            $256.48,     $255.00,              $0.00,                   $0.00,                      $1.48
Subtotals, 50,                      ,              ,            $1282.44,    $1505.17,             $0.00,                   $43.07,                    -$222.73
  • 1
    Do you still own any shares in this company? – JoeTaxpayer Nov 17 '18 at 14:15
  • @JoeTaxpayer No, I don’t own any shares. There were no further trades for this stock before or after this set of trades. – user78917 Nov 17 '18 at 19:53
  • 1
    Not that it applies to this example but even a tiny purchase in a DRIP can trigger a wash sale violation. Therefore, if one has a DRIP and one is doing some tax loss harvesting, make sure to shut off the DRIP if the reinvestment date coincides with the 60 day window around the loss date. – Bob Baerker Nov 17 '18 at 21:33
3

A wash sale occurs when you incur a loss and you buy a “substantially identical” stock, option or or security within 30 days before or after the loss date.

If done, the loss is added to the cost basis of the substantially identical investment you purchased and gets carried forward until the position is fully liquidated for more than 30 days. Full liquidation occurred on 11/10/18. I also don't see why this is a wash sale.

  • It's a wash sale because he bought on 11/8 (per the last line of his chart) and then he sold on 11/10 (per the first line of his chart). That definitely makes his very first sale on 11/10 a wash sale even though it's not a sale of the particular shares he bought on 11/8. – David Schwartz Mar 9 at 19:23
  • 1
    The intent of the wash sale rule is to discourage people from selling securities at a loss simply to claim a tax benefit and purchasing the same or “substantially identical” securities within 30 days (before or after the sale date) in order to maintain some amount of the position. The OP did not realize any losses along the way so there could be no wash sale violation. It was a one time closing transacton on 11/18/18. The problem is due to a programmer who did the accounting as if shares were bought after a loss.That error is in line one. – Bob Baerker Mar 9 at 20:54
  • Regardless of the intent, the text of the law is clear. If you sell a share of stock and have bought a share of that stock within 30 days and that sale is at a loss, the wash sale rule applies. The OP realized a loss in the first line of the set of sales of shares in FIFO order. The accounting correctly adds that loss to the basis. (The net result is the same as if there was no wash sale rule.) – David Schwartz Mar 9 at 23:12
  • 1
    If one buys new shares within 30 calendar days before the sale or up to 30 calendar days after the sale, the capital loss is deferred until one sells the new, replacement shares. Since the OP sold all of his shares at one time, there is no deferral. So this is merely an accounting issue in the reporting of P&L and it has nothing to do with the IRS intent of the wash sale, namely to defer losses taken for the express purpose of claiming a loss. Your points are much ado about nothing. Where it matters and has consequences is EOY and forced carry forward deferral. – Bob Baerker Mar 10 at 0:39
  • I agree that it's merely an accounting issue in the reporting of P&L and, as I explained, the accounting is correct (though, arguably, unnecessarily complex) and produces the same results as you would produce. – David Schwartz Mar 10 at 0:48
1

I can't read the broker's mind (or, the IT guy that programmed the software that produced the note), but once 30 days have elapsed since the sale of the last shares, you are done. The net loss is deductible. You indicated there were no other transactions, but even if there were, when one goes 30 days with no owned shared, the gains and losses are tallied up, and there is no current wash sale.

In response to Henning's comments. It's not in my interest to debate a third party explanation. On Money.SE, a citation of an IRS document is preferable. From Pub 550 p58 -

Example 1. You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.

In this example, it's clear that the basis of the replacement shares is lowered by the deferred loss. And when those shares are sold (with no further purchase within 30 days) the loss is taken. Thus, my prior attempt at summarizing why a wash sale is concluded once all shares are sold and no position held, for 30 days.

  • 3
    It’s a logical, indisputable conclusion. A wash sale occurs under a set of given circumstances, a buy within 30 days before or after a sale at a loss. Any tome you sell shares at a loss there is a potential wash sale, if not before, then after the sale. If one has no remaining shares and waits 30 days, whatever shares were subject to wash sale rules are no longer in possession. So the loss is taken. You can’t have no shares of a stock and still have a disallowed wash sale loss in that same stock. – JoeTaxpayer Nov 17 '18 at 20:32
  • 2
    Yes, but one you sell any and all shares, and 30 days pass, there is no deferred loss, you get to take the loss. – JoeTaxpayer Nov 17 '18 at 20:41
  • 3
    Henning Makholm - Your conclusion that " you can't deduct that loss, period" is incorrect. If you sell shares at a loss but you have purchased other shares within 30 days before or within 30 days after taking that loss, you must carry that loss forward by adjusting the cost basis of those other shares. The loss is deductible once all positions involved are closed and a period of 31 days without ownership passes. It really is a logical, indisputable conclusion. – Bob Baerker Nov 17 '18 at 20:58
  • 1
    It literally says “within 30 days”. This means before or after. – JoeTaxpayer Nov 17 '18 at 22:53
  • 1
    The disallowance of the wash sale loss does not mean that it is lost to you forever. It means that you must adjust the cost basis of the additional transaction and carry the lost forward until those additional shares are disposed of, at which time you get the deduction that was postponed. – Bob Baerker Nov 17 '18 at 23:31
0

I can see that the first row of the data shows $120.00 in cost and $76.93 in proceeds, which results a -$43.07 gain. With only this set of trades, how is it determined that $43.07 is the wash sale loss disallowed?

You had a purchase of at least that many shares within the 30 days prior to that sale according to the last row in the table you presented. That means that first loss is disallowed under the wash sale rule.

However, that doesn't mean you never get to deduct that loss -- it means that the loss is included in the basis in the shares that cause the disallowance and is recovered when those shares are sold.

Note that the wash sale rule doesn't care about FIFO or accounts or anything else. Heck, it doesn't even require the buy and the sell to be the same financial instrument so long as they're substantially equivalent. It just requires that you bought something and sold something substantially equivalent within 30 days, which the data you presented says that you did. If you buy 10 shares and then your first following sell is 10 shares at a loss within 30 days, that sale is a wash sale. No other factors matter.

  • Thank you for the input. To clarify, I did not purchase shares 30 days before the first sale. The first row shows that 3 shares were acquired on 09/18/2018 and sold on 11/10/2018. The data is a first-in-first-out series of acquisitions/sales. There are no acquisitions or sales outside of this data for this particular stock - and no options or otherwise derivatives related to the stock ticker were traded. – user78917 Mar 9 at 3:29
  • I don't understand. You say, "I did not purchase shares 30 days before the first sale". But the last row of your chart says "11/08/2018" under "Date Acquired". 11/08/2018 is within 30 days of the first sale which took place on 11/10/2018. A buy and a sell within 30 days triggers the wash sale rule, whether or not the buy and the sell were even of the same financial instrument. – David Schwartz Mar 9 at 19:28
  • Indeed - I did purchase shares within 30 days of the 11/10/2018 liquidation. That was an incorrect statement. However, I still do not understand why the value of $43.07 is the subtotal for the wash sale amount column. I profited from 30 shares that were traded within 30 days of the loss. Why are the other losses not considered a disallowed wash sale loss? At minimum, why are all 5 shares purchased on 9/18/2018 not considered - for a total of -$28.70 + -$43.07 = -$71.77 ? – user78917 Mar 28 at 7:04
  • The amount of the loss is $43.07 since $120 minus $76.93 is $43.07. The wash sale rule disallows the entire amount of that loss (because the number of shares in the txn triggering the rule is greater than the number of shares sold in the affected txn) and adds it to the basis of the shares that triggered the wash sale rule. – David Schwartz Mar 28 at 20:11
  • Why is the loss in the second row not considered a disallowed loss? The dates of acquisition and sale were the same as the first row. With your interpretation of the rule, it seems I could have purchased the first 20 (3 + 2 + 5 + 5 + 3 + 2) twenty shares in one purchase instead of a series of purchases and disposed of them for a total loss of $296.39 ($43.07 + $28.70 + $75.55 + $59.25 + $71.12 + $18.70), and the loss of $296.39 would be disallowed. Is that correct? Would that not mean that this reveals a way to circumvent a wash sale? – user78917 Apr 9 at 16:27

protected by Ganesh Sittampalam Mar 7 at 19:50

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