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If the sale and subsequent repurchase of a stock occurs in two separate calendar years, but within 30 days of each other, is that still considered a wash sale for tax purposes of the sale in the first year?

As an example:

  • Sale on December 29th
  • Purchase on January 3rd of the following year

Does the answer change if the sale is a disqualifying disposition of exercised ISOs and the repurchase is the exercise of additional ISOs?

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Yes - in fact that's the reason for the wash sale rule, to keep people from selling at the end of one year to claim a tax deduction for the realized loss, then rebuying at the beginning of the next year, getting a tax deduction with no significant change in position. The rules defer that tax deduction until you close out your position for more than 30 days.

If the sale and buy happen in the same calendar year, then the net effect is zero, since all the wash sale rule does is apply the original cost basis to the re-bought shares, deferring the tax break at worst.

For example, suppose you had 100 shares that you bought for $10 (it doesn't matter when), then sold them on March 1 for $8 (realizing a $200 loss), then re-buy them on March 30 for $6. For tax purposes, the loss would not be deductible, but the cost basis of your re-bought shares would be $8 instead of $6 (adding the $2 loss to the cost basis), so at worst you'd be deferring the loss until you sold the re-bought shares (e.g. if you sold them for $12, your taxable gain would be $400 instead of $600).

Does the answer change if the sale is a disqualifying disposition of exercised ISOs and the repurchase is the exercise of additional ISOs?

I have not seen any exceptions specifically for ISOs - but the point of the wash sale rule is to prevent tax loss harvesting by deferring losses, so if you had a loss from the sale at worst you could claim that loss when you sold the "additional" ISOs. If the loss was substantial and you wanted to try and claim it, you could talk to a CPA to see if it was possible.

Or, wait 30 days after the sale of the first set of shares to exercise the ISOs - there's no real loss since you're buying at the same price either way.

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  • The scenario in the first paragraph would work just as well in the middle of a year. There is nothing special about "selling at the end of one year [...], then rebuying at the beginning of the next year". The "Yes" answer is still accurate, of course.
    – void_ptr
    Commented Oct 12, 2022 at 16:24
  • Sure, but tax wise it's a non-issue (other than maybe some paperwork on your return). At the end of the year, your taxable gain/loss is the same whether you count the loss of the first (wash) sale or the second (closing) sale. That's what I meant in the second paragraph. It only matters if you keep the re-bought shares past the end of the tax year.
    – D Stanley
    Commented Oct 12, 2022 at 16:36
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    @HartCO Thanks - fixed. I originally had the example where the shares were re-bought at the same price and thought that was confusing...
    – D Stanley
    Commented Oct 13, 2022 at 14:20

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