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Here is my Fidelity YTD tax report on short-term losses. Why does it show a wash sale disallowed loss for the VTI holding, but not for the VV holding?

2018 YTD ST Losses

  • Thanks for the analyses. They are very helpful. I am intrigued by Bob Baerker's statement that "Wash sales are not an issue [if] an entire position is closed out by the end of the year." This "rule" is what got me to the StackExchange. But where does this rule come from? It's not in the statute or rules. It would seem to mean that I can (1) go through all my losers for the year and, (2) if I make certain I am closing out all my positions in them (and stay out of them for the rest of the year), reap some great tax losses before the end of the year. – Bill Dec 24 '18 at 14:13
  • Where does the wash sale rule come from? See IRS pub 550 (page 58 - Wash Sales). Yes, you can (1) go through all of your losers for the year and (2) if you close out all positions in them (and stay out of them for 30 DAYS AFTER REALIZING THE LOSS), then you can deduct up to the limit of $3,000 in losses after netting out gains against losses. – Bob Baerker Dec 24 '18 at 16:12
  • No, my ? was about the legal basis for the rule of "Wash sales are not an issue [if] an entire position is closed out by the end of the year"? Or is it just that closing ones entire position for a loss indicates that there must be a non-tax reason for taking the loss. I.e. if the reason for the rule (to deter losses incurred solely for tax purposes) doesn't apply, don't apply the rule? I would feel a whole lot better about relying on the "close-out" exception if there was a Revenue Ruling somewhere that explained it and said it was a valid application of the wash sale rule. – Bill Dec 25 '18 at 2:08
  • The legal basis of the rule is that the IRS makes the rules. Losses are allowed. The intent of the wash sale rule is to prevent you from creating artificial losses, namely closing the position to realize a loss and then immediately opening it to restore the position (or executed in reverse order). IOW, the IRS wants tax revenue this year not next year. – Bob Baerker Dec 25 '18 at 13:58
  • About the rule of "Wash sales are not an issue [if] an entire position is closed out by the end of the year," is there something significant about it being at "the end of the year"? I have good losses to harvest by closing all my positions in VOO before the end of the year. But the market is creeping back up. Could I still close out my positions on 1/6 or 1/7/19 and avoid a wash sale? (Of course, it would then be a 2019 loss.) – Bill Dec 26 '18 at 17:53
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The sale on 4/2 was a wash sale because of the purchase on 3/16. Note that the disallowed loss causes an adjustment to the basis of the purchase on 3/16, which was subsequently sold, so you actually do get the tax benefit of the loss.

For the sale on 12/17, there was no additional purchase within the wash sale period, so there’s no reason for it to be a wash sale. However, the period extends into next year, so if you purchase more VV within that period, then that may be a wash sale, too.

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Wash sales are not an issue an entire position is closed out by the end of the year. If they are not, the loss deduction is disallowed and must be carried forward.

For VV, there is no date acquired or date sold info. I'm guessing that the position was acquired over time (multiple dates), hence the reason for not listing these. I'm also going to guess that even if there were wash sale violations within the period of ownership then because you sold your entire (?) position of VV shares in 2018, then there is no wash sale carryover violation and you are allowed to deduct the full loss.

The 350 shares of VTI sold for a loss on 4/02 was a wash sale because you bought back shares on 4/22 and that violated the 60 day window (30 days before or 30 days after). I would assume that you did not sell off your entire position in VTI and therefore, the loss has been disallowed and must be carried forward to next year.

In order to accurately analyze this, a chronological list of all trades since the first purchase would be needed and honestly, I'm not going there. Ironically, I spent half the day today collating my 2018 trades to determine what my wash sales situation looks like and where I have carryover issues. Where possible, I'm going to close the entire position this coming week to reduce/eliminate the bookkeeping headache.

If any of my guesses or assumptions are incorrect then move on to the next answer, if any :->)

  • The VV was a one-time purchase on 12/10 and sold on 12/17 for a loss. – Bill Dec 24 '18 at 14:51
  • Since it was a one time purchase and complete sale of shares, it wasn't a wash sale. You didn't buy shares within a 60 day period around the date that you realized the loss (30 days before and 30 days after). – Bob Baerker Dec 24 '18 at 16:05
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A wash sale occurs if you buy replacement shares for those you sell at a loss, within 30 days before or after the sale. The actual shares you sell are not replacement shares even if they were bought less than 30 days before. In VTI, your loss realized on April 2 was disallowed because you bought replacement shares on March 16. In VV, you had only one purchase and one sale, so there were no replacement shares.

A good explanation of the wash sale rule is here.

The intent is to prevent you from deducting a loss that you have not genuinely realized. If you buy replacement shares around the same time as the sale, then from a risk perspective, you essentially remain invested the whole time -- the purchase and sale are likely to occur at similar prices and are thus a "wash". It would be a giant loophole if people could effectively deduct unrealized losses, while also not being taxed on unrealized gains.

  • Here's another rule that everyone here seems to accept, but I don't see anything in the statute or rules about: "The actual shares you sell are not replacement shares even if they were bought less than 30 days before." My buying the VV shares a week before I sold them for a loss certainly seems to come within the letter of the rule -- they were bought within in the 30 days before the loss sale. Is there some revenue ruling defining which identical stock bought within the 30 days before a loss sale is a "replacement" and which identical stock bought in the same period of time is not? – Bill Dec 25 '18 at 2:18
  • @Bill That has been asked here. – nanoman Dec 25 '18 at 16:53
  • Went to the comment you linked to, thanks. Like the protagonist there, I still don't see the result you argue for in the text of the rule (and I'm a law professor used to complex federal statutes). But since it really helps me in generating losses, I will take your word for it and use in good health. As my father advised me as young man, if one person accuses you of being drunk when you are not, you can ignore it. If 2 people do, think about it seriously. But if 3 people accuse you of being drunk when you are not, go home and go to bed. – Bill Dec 25 '18 at 18:43
  • I should add that it doesn't bother me that the result of the discussion you sent me concludes essentially that the literal meaning of a rule does not apply to situations that don't come within the intent of the rule. The famous US S Ct case on this is Holy Trinity Episcopal Church, where a federal statute made it unlawful for anyone to assist in the migration of “any alien . . . under contract or agreement . . . to perform labor or service of any kind in the United States.” Holy Trinity Church was prosecuted when it hired an Englishman to come to the United States to be its pastor. – Bill Dec 25 '18 at 18:53
  • Despite the fact that the English pastor came within the wording of the statute, the Supreme Court held that the church had not violated it. It observed that the “evil” at which the statute was directed was importation of “an ignorant and servile class of foreign laborers” who agreed to work “at a low rate of wages,” thus “break[ing] down the labor market.” Since “it was this cheap unskilled labor which was making the trouble” and it was never suggested that “the market for the services of Christian ministers was depressed by foreign competition,” the statute would not apply. – Bill Dec 25 '18 at 18:55

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