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I have the following lots:

  • 100 shares on 9/1/2020 for $20/share
  • 50 shares on 5/1/2021 for $40/share
  • 10 shares on 10/1/2021 for $35/share

Currently the price is $30/share and I want to cut losses and sell 60 shares from my two losing lots. Will this trigger a wash sale because the last lot was purchased within the past 30 days or does it not apply since it is being disposed entirely? (I do not plan on buying more in the next 30 days)

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  • Typically sales across multiple lots are triggered on a FIFO basis. This means that (assuming you have all shares in the same account) your 20$ shares would be sold first at a gain of 10$ each
    – Manziel
    Oct 19 at 11:00
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    @manziel - When shares are sold, your broker defaults to FIFO. However, the IRS allows you to designate the shares you want to sell. You must must be able to prove that you provided such instructions. Here's a reference. Oct 19 at 13:58
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does it not apply since it is being disposed entirely?

Correct.

Wash sale rules are intended to reduce tax loss harvesting by deferring the tax benefit until you sell the shares that you acquired recently. It does not prevent reporting a loss altogether.

Since you say you are disposing of additional shares, wash sale rules do not apply.

However, just for grins, let's say that they did apply, and you kept the 100 shares. A wash sale just means you would not be able to claim the $550 loss in this tax year. The $550 would be subtracted to the cost basis of the 100 shares, for a new cost basis of $25.50. When you sell those shares, you will have less taxable gain, reducing your tax hit at that time. So at worst it just defers your loss (or reduces gains) later.

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  • Clarification on your 3rd paragraph? I wonder if selling the offending shares today (shares bought on 10/01) cleans up the potential wash sale or whether the broker's software mechanically looks at the dates and says that replacement shares were bought within 30 days of a loss and selling the replacement shares isn't a fix. I dunno... Oct 19 at 15:06
  • My admittedly un-expert opinion is that since the loss is "absorbed" by the 50 shares there is no loss harvesting. The broker may still report a wash sale but when you file you should be able to deduct the loss.
    – D Stanley
    Oct 19 at 15:23
  • If he sells the 10 shares for a gain, per your premise, that might be fine (I'm not sure) but if he sells the 60 shares, both of which are losses, I don't think so. I don't pretend to know the answer so I'm just speculating. I used to use some quality tax accounting software and it knew what to do but I never dissected the sausage given that the IRS accepted its calculations. Oct 19 at 15:47
  • I may be wrong too, but the loss is on the 10 shares that were bought, not the original 100, so yo could argue that the 10 lots were not bought just to harvest a loss from other lots (the lots that have a loss are all being sold) . IOW, the wash sale scenario would be if the lot of 100 had a loss, 10 shares were bought, and 10 shares from the lot of 100 were sold at a loss. That is not the case here. After the sales the OP still has the original 100 share lot at its original cost basis.
    – D Stanley
    Oct 19 at 16:24
  • The IRS regulations lack clear detail so I try to avoid loss situations by either closing out all positions by year's end or avoiding any potential wash sale violations in the 60 day window. Sometimes it's a royal PITA. Oct 19 at 18:09

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