Wash Sale Rule While Holding Initial Investment

Question

I have a question for those familiar with the wash sale rule. I understand what it is, basically, if you sell shares of XYZ at a loss and buy it again within 30 days, you can't claim those losses on your taxes for the filing year. That part I understand.

My question: Let's say I buy 100 shares of XYZ at $2 ($200) and it drops down to $1. At this point, my PL is -$100. However, let's say I buy 100 additional shares at $1, and then sell 100 shares (while still holding on to the initial 100 shares) at $1.50 (gaining $50 for that trade). Would the wash sale rule kick in if I did this example, say, 3-4 times and never sell the original 100 I had before?

Answer 1

The wash sale rule, from investor.gov (emphasis mine):

A wash sale occurs when you sell or trade securities at a loss and within 30 days before or after the sale you:

• Buy substantially identical securities,
• Acquire substantially identical securities in a fully taxable trade, or
• Acquire a contract or option to buy substantially identical securities.

In your hypothetical scenario, it will depend on how you designate which 100 shares at $1.50. You mention "while still holding on to the initial 100 shares". To achieve this, you'll be designating that you are selling the 100 shares that you bought at $1.00.

Thus, you did not sell anything at a loss. So the wash sale rule does not apply.

You then ask about doing this three or four times. As long as none of the sale actions result in a loss, the wash sale rule won't apply.