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Over a month ago, I wanted to do some tax-loss harvesting. I wanted to sell a fund that had dropped in value and replace it with a more generic fund. Right before I sold, the fund paid out dividends which were automatically reinvested. I didn't think it would matter because I was selling my entire position, and from what I've read wash sale basis adjustments only apply when there are replacement shares. It's covered in "#1: Selling All" here, for example.

However, when I look at my closed positions or tax info year-to-date at my brokerage online, I see the following:

closed position

A key shows the blue w symbol as:

"adjusted due to previous wash sale disallowed loss"

I realize it's only a few bucks, so not a big deal, but I'd prefer it not complicate my taxes and I can't help but wonder, why do I have a wash sale basis adjustment if I sold all shares? This is the entirety of my transactions with this fund and I didn't trade it in any other accounts. It has been over 31 days since the sale to ensure my brokerage wasn't waiting to make sure I didn't buy more within that time period. I contacted customer service but they weren't very helpful; basically it was boilerplate "talk to your tax advisor" stuff.

Note that my question is similar to My Brokerage statement shows "Adjusted due to previous wash sale disallowed loss" what does this mean? (even looks like the same brokerage), but I believe my situation is different, because I sold all my shares.

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Sale at loss within 30 days of purchase (in either direction) is a wash sale. The fact that the purchase was automatic due to dividend reinvestment policy - is irrelevant. You still sold within 30 days of purchase, at loss.

The brokerage did the right thing. They don't know anything else other than you sold at loss within the 30 days of purchase, so it is a wash sale. It is your own responsibility to adjust your basis on the tax form to reflect the fact that it was a complete sale and you didn't re-acquire a similar investment 30 days after the sale.

  • I agree it's a wash sale, just confused about the basis adjustment. I can't see how they could adjust my basis without any knowledge that I repurchased shares. How did they arrive at decreasing my basis by $3.23? – Craig W Aug 18 '15 at 2:32
  • @CraigW I can't say about the math, but the adjustment is required since you sold at loss within 30 days after purchase. I believe what they did was to decrease your basis in the reinvested dividends by the loss you've harvested. – littleadv Aug 18 '15 at 2:36
  • So presumably I'll see these same transactions on the 1099-B from my brokerage. Is the correct action to manually delete the wash sale adjustment since I sold all shares and did not repurchase? – Craig W Aug 18 '15 at 2:39
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    @CraigW you'll have to manually adjust, all the tax-preparation software have support for this. Shouldn't be hard, but if you have multiple brokerage accounts you need to be careful since wash sales may not be marked when you in fact had a wash sale, and as in your case - marked when you in fact hadn't. – littleadv Aug 18 '15 at 2:41
  • Do you have a reference to support that "the brokerage did the right thing"? I'm not doubting you, but I find it odd that my brokerage would adjust my basis by a few dollars under the assumption that I may have purchased back some shares without their knowledge. For all they know I could have bought back enough shares to disallow my entire loss. – Craig W Aug 24 '15 at 15:05
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The law provides for "replacement" before or after the sale. In this case the 0.098 shares acquired on 7/2/15 are replacements for the shares sold on 7/8/15 because they are within 30 days before the 7/8/15 sale. The $3.23 wash sale adjustment lines up pretty well with the $3.14 loss posted on 7/8/15. If you dig a bit, I bet you'll be able to explain that $0.09 difference through commission or something similar.

I looked at the link in your original question under "Sell All." Your case doesn't fit there because you have multiple buys on multiple days.

It doesn't seem to me that you need to make a correction at tax time. Your broker has done that for you.

  • So some of my loss has essentially disappeared for tax purposes because I have multiple buys on multiple days? That seems unlikely. – Craig W Aug 25 '15 at 11:56
  • @CraigW That is the one and only purpose of the wash sale rule. Your case is a little unusual maybe because the dividend reinvestment plan just happened to buy right when you were closing your position vs a more deliberate decision. Maybe if you found some specialist they would be able to find a loop-hole for that. Good luck. It would be more satisfying if we could compute the $3.23 adjustment exactly, but I don't think the chart that you posted has quite enough information from that. The footnotes on the two middle columns probably have information about commissions that we would need. – user32479 Aug 25 '15 at 12:41
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    Wash sale basis adjustment just delays realizing the capital loss, it doesn't cancel it out forever. The footnotes that you're referring to (white 'w' inside a blue circle) is defined as "adjusted due to previous wash sale disallowed loss". I have a similar situation with another fund that was bought and sold commission-free; here is a screenshot of its transactions. At least to me it doesn't seem any easier to explain the amount of the basis adjustment. – Craig W Aug 25 '15 at 13:14
  • The footnotes that I mentioned earlier were the asterisks on Proceeds and Cost Basis, which I expect to have information about commissions, fees, or other adjustments. The values in these columns themselves are usually adjusted somehow - not the "raw" values. Without knowing what, if any, adjustment they made and without knowing the security involved to look up historical data for comparison, it's hard or impossible to calculate what exactly happened here. For example, it's possible the cost basis on one of the other lines already accounts for a wash sale correction with the other sign. – user32479 Aug 25 '15 at 14:11
  • Oh, sorry. Here are the footnotes explained. – Craig W Aug 25 '15 at 15:10
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Although this was indeed a wash sale, it's not clear to me why there was a basis adjustment since I sold all my shares and did not repurchase. However, looking more closely at my dividend reinvestment purchases, it doesn't seem to matter.

On 07/02/2015, a dividend of $44.35 was reinvested into 1.083 shares. This was split between two transactions in the graphic shown in the question: 0.985 shares acquired on 07/15/2014 at a basis of $43.57 and 0.098 shares acquired on 07/02/2015 at a basis of $4.01. Combined those two give a basis of $47.58. That minus the basis adjustment of $3.23 gives the expected basis of $44.35.

Assuming my brokerage reports this on my Form 1099-B with a basis of $44.35, either via the normal way or with the wash sale adjustment, no manual correction is needed on my part.

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    Since you have no position any more, it can't possibly make any difference whether the wash sale rule is applied or not. The effect of the wash sale rule would be to delay the loss until you no longer have a position, but the sale removed the position entirely. So it's a dead issue. Let the wash sale rule apply so you don't have to argue why it doesn't. – David Schwartz Feb 1 '17 at 0:11

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