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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?

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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.

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  • This makes a lot of sense, I kind of assumed this but I just wanted to possibly see if I was missing something. Mainly because if I gained the $50 in the hypothetical scenario, I would technically be -$50 and didn’t know if that would affect anything. I appreciate the emphasis. – Chris Mar 30 at 20:10
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    You aren't "technically ... -$50". You need to consider real gains/losses for these calculations, but paper (aka "unrealized") gains/losses don't enter into it. – Doug Deden Mar 30 at 20:13
  • Ohhh okay. This is make a WHOLE lot more sense now. Thank you so much for taking the time out of your day and correct me. I appreciate it. – Chris Mar 30 at 20:14

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