2

Let's say I buy some stock. Two weeks later it pays a dividend which is reinvested in fractional shares of the stock. The next day I sell all shares at a loss. Would this be considered a wash sale? This page suggests not, but I've found sources that say otherwise. If I had dividend reinvestment enabled but want to sell multiple positions soon, how can I avoid wash sale rules (other than not selling at a loss)?

1

You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.

  • Correct (or at least I will). See comment on littleadv's answer below. – Craig W Mar 31 '14 at 21:33
1

I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply.

According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis.

(c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of.

You can resort to the claim that you have not, in fact, entered into the contract within 30 days, but when you gave the instructions to reinvest dividends. I don't know if such a claim will hold, but to me it sounds reasonable. This is similar to the rules re short sales (in (g) there). In this case, wash sale rules will not apply (unless you instructed to reinvest dividends within the 30 days prior to the sale). But I'd ask a tax professional if such a claim would hold, talk to a EA/CPA licensed in your state.

  • He sold all shares. 31 days later, if he still has no stock, i.e. no new purchase, he's good to take the loss on those shares. – JTP - Apologise to Monica Mar 30 '14 at 13:14
  • @Joe his problem is that after he sold all shares, he got dividend and got it reinvested. I.e.: 31 days later he still has some of the stocks (he doesn't want to sell it because the commission is too high for the amount). – littleadv Mar 30 '14 at 19:22
  • "The next day I sell all shares" threw me off. It read to me as if no shares remained. – JTP - Apologise to Monica Mar 30 '14 at 22:02
  • I haven't done anything yet, but the plan is to sell all shares last. As long as dividends don't get reinvested after the fact, which is a separate but related question here, I should be fine right? – Craig W Mar 31 '14 at 21:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.