I use Robinhood for stock trading that uses FIFO (there is no other selectable option).

If I..

  1. Bought 10 shares of SSS 1/1/2019 at 1:00 pm at $100 each = $1000
  2. Bought 10 shares of SSS 9/1/2019 at 2:00 pm at $50 each = $500
  3. Sold 10 shares of SSS 9/1/2019 at 2:02 pm at $50 each = $500

According to wash sale, what is my cost basis for year 2020 - $50 each ($500 total)? and I can claim the $500 loss in 2019 assuming no more transactions for stock SSS?

If #2 and #3 were flipped, I know that would be a clear case of wash sale. I am confused because #2 and #3 happened the same day and #3 (selling) a few minutes after #2 (buying).

  • 1
    This is very clearly a wash sale, you bought within 30 days of a loss sale. You have a disallowed $500 loss that will have to be added in to the cost basis of the remaining 10 shares. Why would you think it isn't a wash sale? – quid Sep 6 '19 at 17:44
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    I thought you had to sell first and then buy (within 30 days) for wash sale to kick in? – DiYer Sep 6 '19 at 17:46
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    The rule is 30 days before or after. – quid Sep 6 '19 at 17:47
  • Ahh, missed before or after. That makes it clear. – DiYer Sep 6 '19 at 17:49
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    Your example is one of the major reasons the rule exists; to disallow tax deductions for contrived losses like this. Good luck! – quid Sep 6 '19 at 17:55

I'd say that almost definitely counts as a wash sale.

If you could simply reverse steps 2 and 3, The Wash Sale Rule wouldn't be effective because everyone could game it easily. The goal is to prevent investors from taking losses solely for tax purposes, and while that may not be your intent, the outcome is the same.

Clear Wash Sale: Buy 100 shares, Sell 100 Shares, Rebuy 100 Shares = Position of 100 Shares and a Realized Loss

Your Example: Buy 100 Shares, Buy 100 Shares, Sell Original 100 Shares = Position of 100 Shares and a Realized Loss

The reason I say "almost definitely" instead of "definitely," is because I've noticed some ambiguity/subjectiveness to the rule from my own experience.

For example, the rule doesn't allow the repurchase of similar securities I traded both UVXY and SVXY in the same period and it was marked as a wash sale even though these are inverse ETFs. That said, defining similar stocks is clearly more subjective than analyzing buy/sell orders.

  • Note that for purposes of the wash sale rule, there is no such thing as "sell original 100 shares". The wash sale rule kicks in before you get to determine which shares you sold. It comes before things like the FIFO rule. – David Schwartz Jun 25 '20 at 22:32
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    The rule doesn't allow the repurchase of similar securities. If the securities are deemed to be 'substantially identical' then the wash sale rule is applicable. – Bob Baerker Nov 5 '20 at 14:25
  • @DavidSchwartz If you sell the 2-minute-old shares, there is no loss, so there is no wash sale. If you sell the 9-month-old shares, there is a loss, and it would be considered a wash sale due to the purchase of additional shares earlier. – chepner Jul 3 at 18:22

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