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If I purchase a stock/option, sell it for a loss, and then repurchase the same stock/option in multiple accounts, does the wash rule apply to the first repurchase? I think my understanding of options are that they are all considered the same for wash rule purchases, so let's assume the calls are for the same strike price.

Account 1:

1/5/2020 - Purchase 20 STOCK_A CALLS @ 2.55 ($5100)

1/10/2020 - Sell 20 STOCK_A CALLS @ 2.00 ($4000) ($1100 in loss)

1/12/2020 - Purchase 20 STOCK_A CALLS @ 1.95 ($3900)

Account 2:

1/15/2020 - Purchase 100 STOCK_A @ 50 ($5000)

My understanding is that the purchase of calls on 1/12/2020 triggers a wash sale. Does the cost basis get applied to the first stock/option purchase, in this case, the cost basis of the transaction on 1/12/2020 be ($3900 + $1100).

This is also assuming that none of these accounts are ROTH IRAs. If Account 2 is a ROTH IRA, does this change anything? My understanding is that a wash rule that involves a loss in a brokerage account and a purchase in a ROTH IRA means the loss is permanently lost: it cannot be deferred anywhere and the cost basis of the stock in the ROTH IRA remains the same.

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  • is the second buy at the same strike price?
    – D Stanley
    Jan 21, 2021 at 15:09
  • I always have read that the strike prices don't matter cause it's still considered 'substantially identical'. For this example, just consider that they are all the same strike price, and that Account 2 is purchasing actual stock.
    – Jeffery
    Jan 21, 2021 at 15:16
  • The strike price doesn't matter. The calls are considered substantially identical regardless of strike. As an example of when the strike price matters, the strike price comes into play when you incur a realized loss on the underlying and then you sell a short put. If the short put is deep ITM, it's considered substantially identical but the IRS definition as to what deep ITM means is nebulous.
    – Bob Baerker
    Jan 21, 2021 at 15:26

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Interesting question that I don't know the exact answer to.

(1) Yes, you are correct that the 1/12/20 call purchase triggers a wash sale and the $1,100 loss is added to its cost basis of $3,900.

(2) IRS Rev. Rul. 2008-5 Rev. Rul. 2008-5 states that if you realize a loss in a taxable account and you purchase substantially a identical securities within the 60 day window then the loss is permanently lost: it cannot be deferred anywhere and the cost basis of the stock in the ROTH IRA remains the same.

So if you made the first two option trades ($1,100 loss) and the IRA share purchase in account 2 without the call repurchase on 1/12/20 then you'd violate the above rule.

(3) What I'm not sure of is how this is handled with two wash sale violations, two accounts, and an involvement with an IRA account. My gut feeling is that trade #3 creates the wash sale with cost basis adjustment and that trade #4 results in loss of that adjustment and you permanently lose the ability to deduct the $1,100.

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  • This aligns most with what I've been reading and thinking. Sadly, most of the CPAs I've talked to act like you can just use the 1099-Bs without any problems. Looks like I'm just gonna have to buckle down and do it myself.
    – Jeffery
    Jan 21, 2021 at 19:43
  • I've found numerous errors in my 1099-Bs over the years. It wasn't difficult to straighten that out when I was a recreational trader with an error here or there. But when I became a frequent flier, it became impossible to do it myself because I scale in and out of positions. With intermittent wash sales mixed into that process, it became impossible to DIY and for that reason, I subscribed to a tax accounting program. The only way to avoid that mess is to close all wash sale positions in December and wait 31 days before entering any of the same or substantially identical ones again.
    – Bob Baerker
    Jan 21, 2021 at 20:00
  • I realize that now. I'm planning on being more careful for 2021, and hopefully closing all positions before December so that I can start with a clean slate. Do you have any suggestions on tax accounting programs that can help?
    – Jeffery
    Jan 21, 2021 at 20:14
  • Gainskeeper and Tradelog are two well known professional tax accounting software packages. When I used to traded heavily with lots of wash sales, I used Tradelog for a few years. It did a fine job. I no longer use it and since they are under new management, this isn't a current evaluation. It offered a 30 day free trial (still?) and they offer scaled subscription pricing, depending how many trades you do in a year. You don't need any of these unless you're a frequent flier. Now I track my trades in Excel and close the wash positions by 12/31 (two days earlier if they are short positions).
    – Bob Baerker
    Jan 21, 2021 at 20:20

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