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Day 1: I purchase Stock A.

Day 5: I purchase more Stock A.

Day 18: I sell 1/2 of total investment for a loss.

I don't repurchase same or similar stock.

Is this loss deductible, to be netted with other short term capital gains?

2 Answers 2

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This is a wash sale violation and the loss is not deductible until the replacement shares are disposed of.

A wash sale violation (WSV) occurs you purchase a “substantially identical” security or option within a 60 day window around the date that you realize a loss. That's 30 days before and 30 days after the loss. All that means is that the lost is deferred as you increase the cost basis of the second purchase by the amount of the loss. When you close the second position cleanly (assuming no additional WSVs), you get to deduct the original loss.

You can have any number of wash sale violations in the same or multiple securities and if you close all involved positions by the end of the year and do not open a "substantially identically" position in the next 30 days after realizing the loss, you can claim all losses in the current tax year.

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Let me illustrate by a minor change to your dates.

Day 1: I purchase Stock A.

Day 105: I purchase more Stock A.

Day 118: I sell 1/2 of total investment for a loss.

On day 105, you are thinking "I might want to sell my Stock A to claim a loss, but I like the stock long term. In fact, I'd be ok to buy more, and I do. 13 days later you sell the day one shares at a loss. The 'replacement shares' were bought +/- 30 days of that sale at a loss. Wash sale.

This leads me to a strange observation. Had you bought 100 shares day 1, and sold 50 at a loss day 5, you might (I am not 100% certain) still have a wash sale issue.

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  • Yes, a sale on day 5 in the OP's example would also trigger a wash sale violation. The rule is fairly straightforward: No purchase of replacement shares within 30 days before or 30 days after a realized loss. Even a DRIP purchase will trigger a WSV. Commented Jul 24, 2020 at 17:10
  • I was just trying to make a point, even what feels like a partial sale, buy one day, sell half within 30 days, is really a wash sale. Commented Jul 24, 2020 at 17:15
  • Maybe I'm misinterpreting your comment but... A partial sale for a loss on day 5 is no problem and is not a wash sale. It's the purchase of the replacement shares within the 60 day window that triggers it. Commented Jul 24, 2020 at 17:24
  • Asking - if day 1 and day 5 purchase were changed to one day, “buy 100 shares day 1” and same sale, 50 shares at loss day 18, wouldn’t that leave OP with 50 shares, bought within the 30 day window? Commented Jul 24, 2020 at 17:28
  • Whatever combination you come up with, it still goes back to the rule. If there is a realized loss and 'replacement shares' are purchased within the 60 day window, it's a WSV. In and of itself, a WSV is just an accounting headache and has no affect unless one carries it forward into the next tax year. Commented Jul 24, 2020 at 17:42

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