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I have read most of the posts on this subject and I think that I know the answer but I want to verify it:

  • 1/2/20 I buy 100sh of XYZ at $3;
  • 1/3/20 I buy 100sh of XYZ at $5;
  • 3/1/20 I sell 200sh of XYZ at $3.5:

I made $50 on purchase 1 and lost $150 on purchase 2 for a total loss of $100. Is this considered a wash sale? My thinking is NO since both sales were more than 30 days. Sorry if this is posted twice, my PC had some problems. Thanks for any help.

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    Tax questions need a country tag. – Chris W. Rea Jun 4 '20 at 15:52
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    Also please make the dates less ambiguous. Does 1/2/20 mean 1 February 2020 or January 2, 2020? – yoozer8 Jun 4 '20 at 15:56
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No, it would not be a wash sale, but it doesn't really matter. If it were a wash sale (meaning the sale was within 30 days of either or both buys), your total loss would be exactly the same.

Wash sales rules don't prevent sales - they just defer the tax benefit of the loss.

Foe example, if you has subsequently bought 200sh of xyz on 3/2/20 for $3.5 (or any price, really), then you would not be able to deduct the $100 as a capital loss - you'd have to defer that loss until you sold the 200sh that you bought on 3/2. Even then, if it all happens in the same tax year it doesn't make any difference.

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A wash sale occurs when you acquire “substantially identical” stocks or securities within 30 days before or 30 days after realizing a loss. The key words here are "replacement securities". The IRS has no issue if you sell for a gain and buy back identical stocks or securities within the above time frame. The purpose of the wash sale rule is to prevent investors/traders from creating artificial losses in order to reduce taxation. For example:

1) 2/02/20 buy 100 shares @ $20

2) 3/10/20 buy 100 shares @ $14

3) 3/11/20 sell 100 shares @ $15

If FIFO is used, the first and third trades result in a $5 loss. The second trade creates the wash sale because they are considered replacement shares. Therefore the $5 loss must be deferred until the second purchase is sold.

In your example, there are is no wash sale because all shares have been disposed of. If your second purchase was within 30 days of the 3/01/20 sale date, there would still be no wash sale because no replacement shares were purchased (you have no ongoing open position).

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  • I have a scenario where I bought 1) 5 shares @ 20 on July 1, 2020 2) 5 shares @ 15 on July 30, 2020. 3) 10 shares @ 10 on December 1, 2020. 4) Sold 10 shares at @ 9 from tax lot 1 and 2 on December 20, 2020. My brokerage doesn't seem to warn me of wash sale which I think it is. – deepSymmetry Dec 28 '20 at 21:08
  • @deepSymmetry - I don't know what brokers, if any, warn you about wash sales. The two that I use do not. As far as your trades, you are correct. Purchase #3 was made within 30 days of realizing the loss when you sold #4. Wash sale carry over accounting is a real PITA. – Bob Baerker Dec 28 '20 at 21:20
  • I use WellsFargoAdvisors and only few weeks back I saw wash sale warning on another stock but not on this one where I have multiple buys and no sell. I believe they have a bug in the system. According to IRS and the rules printed by them, financial institution is responsible for monitoring the wash sale. wellsfargoadvisors.com/pdf/wash-sale.pdf – deepSymmetry Dec 28 '20 at 21:27
  • See last paragraph on page 2. – deepSymmetry Dec 28 '20 at 21:28
  • Yes, that's standard information. All brokers report wash sales to the IRS. Just for clarification, I was referring to a broker warning you before you transact a wash sale rather than their reporting them to the IRS. – Bob Baerker Dec 28 '20 at 21:35

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