This is for USA tax purposes. I find wash sale rule simultaneously a simple and complicated concept. I kind of understand overall idea, but miss the details. Surprisingly, I couldn't find many examples that would shed more light into matter, and help build a better understanding.
I have two questions.
This is the typical definition of wash-sale rule:
The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys the same or a substantially identical stock or security, or acquires a contract or option to do so. 1
Consider this scenario:
- day 1: bought 100 shares at $10
- day 2: sold 100 shares at $9
- day 3: bought 100 shares at $8
- day 4: sold 100 shares at $7
Now, looking formally at the definition one might conclude that both: day 2, and day 4 sales are wash sales:
- for day 2 sale, there is a purchase (day 3) that happened within 30 days.
- for day 4 sale, there is a purchase (day 1) that happened within 30 days.
I believe, this is not how things work in this case. Instead, my understanding:
- day 2 sale will be considered as wash-sale.
- day 3 base cost will be adjusted by
- day 4 sale is not a wash sale, and IRS allows to deduct
-$200of capital loss
Question: Am I correct regarding how wash sale rule applies for this scenario?
Let's say I trade some stock FOO numerous times within a week. I buy / sell, re-enter position, partially close. Some of trades are profitable, some are not, etc. At the end of the week, I close the position, I no longer hold any FOO shares
Question: Is it true, that regardless, whether wash-sale exists or not, I'll be able to deduct the same amount of loss?
My understanding, that when wash sale disallows losses, it re-adjusts base cost, and eventually this leads to the same losses I can deduct. Thus, if all transactions happen within a week of same taxable year, there is no difference wether wash sale rule exists, or not?