First let's make sure I understand a Wash Sale:
Let's say I invest in 100 shares of ABC stock for $100 and after a week sell the 100 shares of ABC for $70, I've lost $30 which I can deduct from my taxable income come tax time. However, if I reinvest into ABC for ANY amount within 30 days of exiting ABC for a loss there is a wash sale which means I can no longer claim the original $30 loss as a loss.
Considering that is all correct, here is my theoretical scenario:
Let's say I buy 100 shares of ABC at $1 a share and at the end of the day I sell all 100 shares of ABC at $0.70 (30% loss). On the following day I buy 100 shares of ABC at $0.70 a share and sell at the end of the day when ABC is at $1 a share (30% gain). Let's theorize that this loss / gain cycle repeats consecutively for 8 additional days so at the end I have the following:
- Lost $30 dollars every other day starting with day 1 and felt -$150 over the 10 day span.
- Gained $30 dollars every other day starting with day 2 and felt +$150 over the 10 day span.
Per wash sale rules I cannot claim ANY wash sale loss because on the last day I invested in ABC and made a profit.
Knowing I cannot claim any losses, my question is: Do I have to pay taxes on all of the gains? That is, will I still have to pay taxes on $150 dollars even though I only ended up gaining a net total of $0 from the time I started?
Here is a visual example of my scenario:
Day: | 1 2 3 4 5 6 7 8 9 10 Loss: | -$30 -$30 -$30 -$30 -$30 Gain: | +$30 +$30 +$30 +$30 +$30 Felt Loss | -$30 -$60 -$90 -$120 -$150 Felt Gain | +$30 +$60 +$90 +$120 +$150 Net Gain | -$30 $0 -$30 $0 -$30 $0 -$30 $0 -$30 $0