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I knew how wash sale work in simple example. But how about in this example:

I lost $1000 for selling Share X. Within 30 days, I purchase it again, this time I gain $500 for selling it.

Again, within 30 days after I sold the second time, I purchase it again, this time I lost $1000 again for selling it.

If from now on I stopped to purchase this stock, I had no problem to calculate, but I decide to purchase it again within the 30 days from previous transaction, and this time I decide to hold it for a long long term.

I knew wash sale won't apply to stock gain, so in my situation, I had gain $500 between, but lost $2000 total, the net lost is $1500. When it came to tax for the wash sale, will IRS tax me for the $500 gain at the end of the year while i am still holding this stock? If IRS did, it sounds very unfair to me, since I had lost $1500.

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The way the wash sale works is your loss is added to your cost basis of the buy. So suppose your original cost basis is $10,000. You then sell the stock for $9,000 which accounts for your $1,000 loss. You then buy the stock again, say for $8,500, and sell it for $9,000. Since your loss of $1,000 is added to your cost basis, you actually still have a net loss of $500. You then buy the stock again for say $10,500, then sell it for $9,500. Your $500 loss is added to your cost basis, and you have a net loss of $1,500. Since you never had a net gain, you will not owe any tax for these transactions.

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  • Thanks for your response. Base on your example, if I repurchase it and hold it for a long time. Then, at the end of the year, will IRS tax the $500 gain, or the IRS will not tax me at all till I sell the stock? – conan Jun 28 '17 at 22:34
  • @conan: the same rules apply. If you do the 3 txns in your Q then make a fourth purchase within 30 days and hold (past the end of the year), your loss from the last (third) sale is added to basis of your holding from the fourth purchase. If you sell in some future year before you die, at that time your gain or loss will be computed using the basis including the added amount, and taxed accordingly. If you die, your heir gets step-up basis and your deferred loss is 'wasted', and if you have no heir I believe the government gets all your money anyway, so I recommend not dying. HTH. – dave_thompson_085 Jun 30 '17 at 21:57

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