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I have a stock with I started buying around @$1,40. I bought some more @$1.20. Then some more @$0.90 to lower my average price. And I bought my last party @$0.60. The stock price is now @0.40 and going down.

I do not want to put any more money, so I want to sell the shares I have with a loss, and buy them back at a lower price to add up some more shares. I do not really care about using this loss in my tax return!

I am just trying to figure out if this is legal, and also will I need to pay any extra taxes because of doing this.

If anyone can help, will be greatly appreciated ...

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  • Tax/legal questions require a country tag.
    – Chris W. Rea
    Sep 23, 2015 at 20:34

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If you bought them, you can sell them. That does not preclude you from buying again later.

You might get yourself into a situation where you need to account for a so-called "wash sale" on your taxes, but your broker should calculate that and report it on your 1099-B at the end of the year. There's nothing illegal about this though - It's just a required step in the accounting of capital gains for tax purposes.

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  • If all the shares were bought within the last few years, the broker should calculate it. If some were bought before the new 1099-B rules took effect, the broker will just report the sale with no basis nor wash sale calculation. Regardless of whether the broker helps out with the calculations, the OP is responsible for handling it on their tax return, so should be aware of what a wash sale is and how to handle it.
    – blm
    Sep 23, 2015 at 16:25
  • Presumes U.S. but should state so explicitly in the absence of information from the OP.
    – Chris W. Rea
    Sep 23, 2015 at 20:35
  • @ChrisW.Rea The prices are stated in $, which is a pretty good hint, although, of course, you're correct that it could be a different currency than US$.
    – user32479
    Sep 23, 2015 at 23:55
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In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares.

IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-).

In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.

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  • The answer should at least mention thinking about wash sales. A wash sale can result in higher taxes (which the original question specifically asks about), and ignoring a wash sale could result at least in an audit, so "perfectly legal" is only true if any wash sale is reported correctly. (And yes, I'm assuming this is all in the US.)
    – blm
    Sep 24, 2015 at 3:05

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