1

I wonder about the Adjustments to Cost Basis after a wash sale occur. Considering this Example 1 ( from marketwatch.com) where someone:

On 1 Dec, 2018 used an amount of money in his account to buy 100 shares of XYZ Co., for $2000 (to make it simple , let's say 1 Feb, 2019 to turn all the transactions into the same year)

On 1 Apr, 2019 he sells the shares for $1200, and incurred a loss of 800$.

On 10 Apr, 2019 he bought back 100 shares for $1300, and had a wash sale. The 800$ loss gets added to the cost basis of this transaction( and the basis becomes $2100)

Now, If on 13 Apr 2019, he sold 100 shares for $1400; I'm pretty sure that the realized Gain/Loss record of this transaction would show something like this: " XYZ Co. shares 100 , Proceeds $1400 , Cost basis $2100(adjusted), Short-term Gain/Loss -$700 ". So, even though the Gain/Loss shows a negative number, he still got an actual profit of $100 from this sale, right?

4

Wash sale accounting doesn't change the amount of the gains or losses, just possibly when you can claim them.

Buy at $20, sell at $12 is an $8 loss and buy at $13 and sell at $14 is a $1 gain - for a total loss of $7.

Adjusting the cost basis due to the wash sale just shifts the cost basis around but the answer is still the same, a total loss of $7.

This would only become a tax issue if the $800 wash sale loss occurred in one tax year and the replacement shares were not sold until the following year (a carryover wash sale violation). You'd still have the same total loss but claiming it would occur on two different tax returns.

5
  • In this scenario, after the sale of 100 shares for $1400 (in April), he doesn't trade XYZ stock anymore. Instead, he trades other A, B, C, .... stocks. Does the $700 loss count to offset the realized gains in other securites?
    – domino
    Oct 7 '20 at 20:44
  • 1
    If you buy the shares back within 30 days after everything has been sold, you have a new wash sale. If you wait 31 days (or never trade that stock again) then the $700 loss is in the books and is fully deductible. Oct 7 '20 at 20:54
  • Good to know. Because, in the articles, they said wash-sale losses are not allowed for tax benefits; I assumed once the wash sale occurred, the loss would stay in the record of the year as non-deductible loss.
    – domino
    Oct 8 '20 at 14:17
  • 1
    The only time that you lose the loss is if the wash sale replacement shares are bought in your IRA Feb 8 at 2:32
  • 1
    Thanks for the follow-up info. Luckily, my trading account is a regular non-IRA brokerage account.
    – domino
    Feb 9 at 13:33
1

I'll add a tabular example to understand the share cost basis adjustment resulting from a wash sale.

Let's assume the following trade history on Stock A:

Date Action Stock A price Gain/loss Commutative Gain/loss
2020-02-07 Buy 100 of stock A 10 0 0
2020-03-17 Sell 100 of stock A 20 1000 1000
2020-03-22 Buy 100 of stock A 18 0 1000
2020-03-29 Sell 100 of stock A 3 -1500 -500
2020-04-10 Buy 50 of stock A 2 0 -500
2020-04-15 Sell 50 of stock A 3 50 -450
2020-05-15 No activity on stock A 3 0 -450

This will result in the following tax activities:

Row Date Action Stock A
price
Stock A
cost basis
Gain/loss Cumulative
Gain/loss
Taxed
Capital
Gains
Cumulative
Taxed Capital
Gains
1 2020-02-07 Buy 100 of stock A 10 10 0 0 0 0
2 2020-03-17 Sell 100 of stock A 20 20 1000 1000 1000 1000
3 2020-03-22 Buy 100 of stock A 18 18 0 1000 0 1000
4 2020-03-29 Sell 100 of stock A 3 3 -1500 -500 -1500 -500
5 2020-04-10 Buy 50 of stock A 2 2 + (18-3) = 17 0 -500 1500*(50/100)
=750
250
6 2020-04-15 Sell 50 of stock A 3 3 50 -450 (3-17)*50
=-700
-450
7 2020-05-15 No activity on stock A 3 NA 0 -450 0 -450

Notes:

2
  • I totally understand table 1. But, for table 2, after having tried pretty hard to understand it, I still can't understand the "stock A cost basis", and "Taxed Capital Gains" columns from row 5 going down. I only can get it from my perspective, which is: since only 50 shares purchased in row 5 subject to wash-sale adjustment, $750 from $1500 loss are not allowed, instead added to the cost basis, and results in a cost basis of $850( 100+750), meaning a cost basis per share of $17( 850/50). And, $750 loss is still allowed, results in a cumulative taxed capital gain of $250.
    – domino
    Feb 9 at 9:32
  • And,yes,those transactions took place in a taxable brokerage account.The columns in the hypothetical examples are actually the column titles in my TD ameritrade Realized P/L report. The dollar amounts are not the same,but the idea is very similar. I want to understand the wash-sale adjustments, since I often place multiple trades on the same stock. Although I don't totally get your table 2 ,but the idea still holds, that wash-sale losses are still counted and tax-deductible,as long as the trades are in a brokerage account,based on sources that you guys refer to. Anyway, thanks for your answer!
    – domino
    Feb 9 at 9:47

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