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The following lots of stock A have been purchased:

Lot 1: 5/28/18 100 shares for $1,000

Lot 2: 6/04/18 100 shares for $1,500

Lot 3: 9/10/18 100 shares for $1,100

Transaction in question:

9/12/18 Sold 200 shares stock A for $2,250 (lots 2 and 3)

The loss on Lot 2 is – ($375). Is this a wash sale? Lot 2 is clearly sold at a loss but the recent purchase of Lot 3 is sold with it in its entirety, so does that lot still qualify as a repurchase?

Edit: I adjusted the sale price so lot 3 is at a gain. I do not think this changes the outcome.

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There's really no such thing as a wash sale "violation". If a sale counts as a wash sale, under some circumstances some or all of the loss cannot be claimed with the sale and instead adds to the basis of the stock.

It's important to keep in mind that the wash sale rule does not care what account you trade in or what lot designations you use. You can even have a wash sale if you sell some stock and your spouse bought a call option on the same stock two weeks prior, even if you file separately.

The criteria for a wash sale are very simple. There must be a sale at a loss. There must be a purchase of a substantially equivalent security within the 61-day window centered on the sale. Those criteria are met here. So the sale of lot 3 is a wash sale.

Again, it is very important to keep in mind that your lot designations have no effect on the wash sale rule. It doesn't matter what accounts you trade in. The wash sale rule does not hinge on any of these things.

The more complex question is what effect the wash sale rule has on this transaction. In the worst case, the loss would not be deductible and instead the basis in the remaining stock would increase, raising your basis in lot 1 to $1,350. I believe that does in fact happen in this case, but I am not certain. Your broker (assuming this all happens in one account) will know and will work it out for you. But, unfortunately, if this is in different accounts, your tax professional will earn their fee.

  • It was lot 2 that was sold at a loss. Otherwise I think you are correct. – Ben Voigt Jul 24 at 0:27
  • I think it is widely agreed that there is a third criterion, such that closing a position and not continuing to hold any substantially equivalent security at any time within the following 30 days cannot be a wash sale, even if there was a purchase within 30 days preceding the sale. But in this example, there is a continuing position, so your conclusion still holds. – Ben Voigt Jul 24 at 0:31
  • @BenVoigt It is a continuous source of frustration to me that while that criteria is absolutely and definitely not part of the law, it is in fact widely agreed that there is such a criterion. This is an unfortunate consequence of the very odd way Congress chose to draft the wash sale rule, writing the statute so as to sweep in a broad array of conduct and then leaving it to regulations to state that there is no effect of the rule on "harmless" conduct. Nevertheless, the wide agreement is wrong - these are wash trades under US law. There just is no consequence of this under the regulations. – David Schwartz Jul 24 at 0:41
  • @DavidSchwartz "the very odd way..." I guess they did it that way to minimize the chance of people/institutions finding and exploiting loopholes. If the law is all-encompassing, but regulations (which are presumably easier to change/update) let "harmless" violations be of no consequence, there's less opportunity for abuse than if every "harmful" situation had to be explicitly listed. – TripeHound Jul 24 at 7:04
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    @schiebermc Those are two different questions. Just because something is a wash sale doesn't mean the loss can't be harvested, at least not under US law. It's very important to ask the actual question you want answered. – David Schwartz Jul 24 at 16:03
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Per IRS Publication 550 (page 56):

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

  1. Buy substantially identical stock or securities,

  2. Acquire substantially identical stock or securities in a fully taxable trade,

  3. Acquire a contract or option to buy substantially identical stock or securities, or

  4. Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

In your example, no replacement stock was acquired within 30 days before or 30 days after realizing the loss. It is not a wash sale.

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    It could be from the guy who believes that the stock is a replacement for itself when there is only one purchase of stock :->) – Bob Baerker Jul 23 at 18:59
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    @BobBaerker: You are aware that there was a purchase within 30 days of the sale, correct? Are you saying that because lot 3 is sold along with lot 2 there is not replacement? Otherwise if I did sell lot 2 without selling lot 3, it would clearly be a wash sale.. – schiebermc Jul 23 at 21:05
  • Does your answer change if you swap the 9/10 and 9/12 dates? – Ben Voigt Jul 23 at 22:02
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    @quid... and you cannot escape wash sale rules by trading different but "substantially equivalent" equities. Lot C is definitely "substantially equivalent" to Lot A. Nor can you escape wash sale rules by placing the replacement purchase before the sale (within 30 days). Given that you agree that the order buy 100, buy 100, sell 200, buy 100 would be a wash sale, I don't see anything different enough in the original scenario to affect that determination. But apparently Bob does. – Ben Voigt Jul 23 at 22:17
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    The wash sale rule is not affected by your designation of which lots were sold. The sale is at a loss, substantially equivalent securities were bought within the 61 day window. It's a wash sale. This answer invents some theory of "replacement stock" (whatever that is) that is not found in the rule quoted. – David Schwartz Jul 23 at 23:14

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