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Wash sales seem to have very weird behavior, here's an example. It uses all the same stock, and there are no other holdings besides those mentioned.

Day 1, buy 100 shares for $200 each, so $20,000 total

Day 2, sell 1 share for $7, so a $193 loss

Day 3, sell 99 shares for $201 each, so a $1 gain per share, or $99 gain total

Now to analyze this for wash sales. There is only a single loss sale, the one on day 2. Are there any buys in the surrounding 61 day period? Yes, the day 1 buy. I assume that the sell cannot be washed by the buy of its own share, so I think it must be washed by one of the other 99 shares in that buy.

So transfer the the $193 loss onto one of the other shares, now when that share is sold it isn't a $1 gain, it is a $192 loss. Now analyze this loss for wash sales.

This process keeps repeating, and you end up with 99 wash sales all chained together, and a single non-wash sale ending the chain, with a loss of $94.

Is this right? Can 1 buy and 2 sells lead to 99 wash sales?

Edit: Bob Baerker suggested a to apply a new rule that "a buy cannot wash a sale if that sale is selling shares acquired in that same buy". Applying that rule means the earlier example has no wash sales. But different examples can have essentially the same effect, even with this new rule, here's a new example:

Day 1, buy 50 shares for $200 each, so $10,000 total

Day 2, buy 50 shares for $200 each, so $10,000 total

Day 3, sell 1 share for $7, so a $193 loss (treat this as coming from the day 1 lot)

Day 4, sell 49 shares for $201 each, so a $1 gain per share, or $49 gain total (treat this as coming from the day 1 lot)

Day 5, sell 50 shares for $201 each, so $1 gain per share or $50 gain total (treat this as coming from the day 2 lot)

The day 3 sale is a loss, and for wash sale purposes we ignore the day 1 buy (because of the new rule), and treat it as being washed by 1 share of the day 2 buy. Now transferring the $193 loss to its sale, that means 1 share of the day 5 sale has a $192 loss instead of a $1 gain.

Now analyze this day 5 loss for wash sales. We ignore the day 2 buys (because of the new rule) and see that it gets washed by 1 share of the day 1 buy. So transfer the $192 loss, and one share of the day 4 sell gets a $191 loss instead of a $1 gain.

This keeps repeating and we end up with 99 wash sales all chained together, ending with a single non-wash sale. The single final non-wash sale has a loss of $94. This is essentially the same result as the previous example. We just had to divide the buys and sells in half and alternate back and forth between those in order to never have a buy directly washing a sale of its own shares.

  • @quid Yes I know there is a difference between selling at a loss and a wash sale. A wash sale does not require a buy within 30 days after the loss. It requires a buy within the 61 day period surrounding the loss. That is 30 days before, the day of, and 30 days after. en.wikipedia.org/wiki/Wash_sale – Buge Mar 18 '18 at 23:44
  • I've decided to simply add an answer. – quid Mar 18 '18 at 23:46
  • In response to your edit, Day 3 sale of one share is a wash sale because you bought new shares on Day 2. This loss is added to the cost basis of one share from Day 1. When all shares are closed, there's no difference in the net loss of $94. It's just a bookkeeping headache. For those who trade in size and apply for Professional Trader status, it provides EOY MTM accounting and you don't incur wash sales - not applicable for locals :->) – Bob Baerker Mar 19 '18 at 1:27
  • Regarding your edit, the newer scenario. On Day 6, you own no shares. On Day 36, the issue is behind you. The numbers are not real, unless somehow you sold one share of 100 at the moment of a flash crash. Do you have an actual problem you are concerned about? – JoeTaxpayer Mar 20 '18 at 1:53
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A wash sale occurs when you sell a security at a loss and you buy a “substantially identical” stock, security or option within 30 calendar days before or after this sale. In your example, you only have your original purchase and no additional purchases so there is no wash sale involved here.

  • So you're suggesting to follow a rule "a buy cannot wash a sale if that sale is selling shares acquired in that same buy"? You're right that that stops the original example from having any wash sales. But similar situations can still have the same effect even with that new rule. I edited my question to include an example that has the same effect even when following that new rule. – Buge Mar 18 '18 at 23:05
  • I have no clue what you are saying/asking in that question. I don't know how many ways the same answer can be explained but since I'm a glutton for punishment (g), let's try this. Day 1 buy 50 shares @ $200. Day 32 sell one share @ $7 for a loss of $193.. That's a tax deductible loss unless you bought additional shares anywhere from Day 2 (30 days before) or up to Day 62 (30 days after). – Bob Baerker Mar 19 '18 at 1:49
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From the IRS -

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

  1. Buy substantially identical stock or securities,
  2. Acquire substantially identical stock or securities in a fully taxable trade,
  3. Acquire a contract or option to buy substantially identical stock or securities, or
  4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

When you parse out the wording, you find that if I buy a stock, and sell it within 30 days at a loss, the wording above says I have a wash sale. One can debate (but I won't) whether this makes sense. What I know is that members have reported their broker statement flag such transactions as wash sales.

But, when 31 days pass, and the investor has no shares of the stock in her possession, the transaction is complete, the loss is taken, and the wash sale effect is negated. In your case, I see buys for 100 shares, sales for 100 shares (total), and it's show over, tip your waitress, drive home safely.

Edit - Since only one share was sold at a loss, if any shares are purchased within 30 days after that sale, the loss (-$193) is delayed, and the new single share gets a basis lowered by the amount of that loss.

Final Edit - I see a major edit to the question was just posted. My answer may no longer apply. I don’t plan to re-read the question to figure this out. A high rep member can suggest I delete my answer if it becomes outdated.

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    But if 10 days later I buy 1 more stock, what happened during the initial 3 days affects that 1 stock. If there were no wash sales during the initial 3 days, then $193 of loss transfers onto this day 10 buy. But if the 99 wash sale chain occurs, then $94 of loss transfers onto the day 10 buy. I'm trying to solve the 3 day situation fully by itself, so I can then use those results to solve the rest of my taxes. Saying "sell and wait 30 days" is sort of a cop-out, it's not really solving my situation. – Buge Mar 18 '18 at 20:21
  • I updated my answer. – JoeTaxpayer Mar 18 '18 at 20:31
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    I stand by my answer. I don’t think it works the way you believe. – JoeTaxpayer Mar 18 '18 at 23:55
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    "Why is the new share's basis in the future buy lowered by $193 instead of by $94 dollars?" $94 is the total loss from trading your stock, start to finish. $193 was the amount of the wash sale violation that had to be added to the cost basis of the initial purchase. – Bob Baerker Mar 19 '18 at 1:32
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    "But if 10 days later I buy 1 more stock, what happened during the initial 3 days affects that 1 stock?" On Day 5 you have sold all shares and you incurred a $94 loss. Now you must wait 31 days to repurchase the stock otherwise you trigger another wash sale violation. Note that wash sale violations are meaningless unless the loss is carried over into the new year. Then, your tax accounting gets funky because you can deduct the loss in the previous year. I look at it as a pseudo estimated payment portion for the 1st quarter, assuming I'm out by then. And no, it does not repeat 99 times. – Bob Baerker Mar 19 '18 at 1:38
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Just to add on to Joe's answer...

If you close a position and there's a gain, Uncle Sam wants his cut. If you close a position and there's a loss, there's a 30 day window where Uncle Sam makes sure you didn't just reopen the position, indicating that you only closed the position for the tax loss. As an example , if you buy a substantially similar security within 30 days of your a sale at a loss, you must include your loss on the cost basis of your re-buy, the effect here is to delay your ability realize the tax benefit of the loss.

For the overwhelming majority of people, the only thing you need to consider for wash sales is,

  • I bought stock.
  • I sold stock and there was a loss.
  • Have I bought the stock in the 30 days preceding the sale, did I buy the stock again in the next 30 days, was this a partial sale within 30 days of purchasing the stock originally and I am still holding some of the position?

    • No: book the loss, deduct it against any gains I may have

    • Yes: include the loss in the cost basis of this purchase effectively delaying realization of the loss.

In your second example, the $193 loss on day three, from a sale of a single share of the position taken on day 1 or 2 [practically speaking] it doesn't matter which as both are within 30 days and have the same cost basis anyway [but the rules say you must use FIFO] , would simply be added to the cost basis of one of the shares purchased on day 1 or 2, [but use day 1 because the rules say so but in this situation it makes no difference]. So one of those shares would have a cost basis of $393 ($200 + $193). As for the sales on days 4 and 5, you have a total of 98 shares with a cost basis of $200 per share and 1 share with a cost basis of $393, your position "cost" you $19,993, $19,600 + $393. You have sale proceeds of $19,698 from the 98 shares resulting in a gain of $98 which is taxable immediately and a loss of $192 from the share that absorbed the wash sale loss. If you buy any shares of this stock again (or options or a substantially similar security) in the next 30 days you may have to include that $192 in the cost basis of one of those shares further delaying realization of that loss. If there are no further applicable buys, you have a net realizable loss of $94, $98 gain less the $192 loss.

There's nothing to WIN from wash sales. The wash sale rule is designed to DELAY the realization of losses, thereby potentially increasing your taxable income. You'll find that if you do a lot of trading in short time frames these rules won't actually impact your outcome. It's really designed to stop people from selling for the tax loss when they had no intention of actually closing the position.

  • "it doesn't matter which as both are within 30 days and have the same cost basis anyway" - THIS ANSWER CONTAINS INCORRECT INFORMATION. The order in which you take wash sales matters; it is mandated in the code of federal regulations as a first-in-first-out chronological manner. Unfortunately as a new user my downvote does not appear. – ninjagecko Oct 12 '18 at 5:24
  • @ninjagecko, In both sets of example transactions all of the transactions happen within a single week, which is within the 30 day wash period. Since all the transactions in this question are within 7 days, the chronology doesn't matter because the outcome is always the same. This person (and a lot of people in March and April of every year) try to look at tax rules to contrive ways to win. Make the transaction sets as complex as you'd like, make a million transactions in a week, if everything is within the 30 day wash period the net result is always the same. Welcome to the money stack. – quid Oct 12 '18 at 17:41

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