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Lets take the following example to understand my question.

  1. I bought 100 stocks of company ABC at a price of $10 per stock on 1st May 2017.
  2. On Dec 1st 2018, I buy 100 stocks of the same company (ABC) at $20 per stock today.
  3. On Dec 15th 2018, I sell 75 stocks from the original batch (bought in May 2017) for $25 per stock. (Total gain = 75 * (25-10) = $1125)

From what I have read, it seems like the wash sale rule only applies for losses. I want to understand if there are any implications in terms of gains, especially if the gains are long term capital gains.

Will the $1125 gain be taxed as a long term capital gain or does the wash sale rule change this?

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A wash sale occurs when you execute a closing trade on a security at a loss and within 30 days before or after the sale date, you acquire a “substantially identical” stock, security, or option contract. The wash sale rule does not apply to gains.

In the US, the IRS assumes that the security acquired is FIFO. Therefore your sale on 12/15/18 is a long term capital gain of $1,125.

The IRS also affords you the opportunity to designate the shares you want sold. This must be done with your broker who must provide written proof of such instructions. In this case, you could sell your shares purchased on 12/01/18 for a short term capital gain of $375

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    +1 - right, of course. But I am wondering if we should edit the question. This has zero to do with wash sales. – JTP - Apologise to Monica Dec 15 '18 at 2:13
  • I explained what a wash sale is and that in his situation, the wash sale rule does not apply. Edit the question if you feel that something is to be gained from doing so. – Bob Baerker Dec 15 '18 at 3:10
  • I'll leave it. As an example of "this is not a wash sale". – JTP - Apologise to Monica Dec 15 '18 at 14:21

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