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I'm preparing my 2017 US income taxes and have received a 1099-B from the broker in my employer-sponsored accounts that includes several short-term capital losses that are designated as wash sales.

I've researched documentation from the IRS and other sources, and the sales do seem to technically qualify as wash sales. However, I'm not sure how to account for them. My brokerage has provided me with horribly inaccurate 1099-B forms this year and several years in the past and has not been at all helpful in explaining their cost basis calculations.

The wash sale rules are triggered by share deposits from ESPP (employee stock purchase plan) and RSU (restricted stock unit) grants, followed by a sale of RSU shared. All of my stock sales came from specifically identified lots.

Example 1: Here's the first sequence they've identified as wash sale losses.

  • 2/27: Holding 4000 shares
  • 2/28: Buy 1000 shares from ESPP purchase, lot A, basis at $20/share
  • 3/20: Deposit 2000 shares from RSU grant, lot B, basis at $40/share
  • 4/10: Sell 2000 shares from lot B at $35/share
  • no further transactions until 5/15

Here, the shares I sold appear to satisfy the technical criteria for a wash sale. The shares deposited on 3/20 are the only candidates for "replacement shares" whose basis should be adjusted per IRS rules. But those are also the shares I sold. The shares from the 2/28 buy were more than 30 days from the sale, so do not seem to qualify.

So I have no idea how to account for this. It seems to me that the losses should be deductible here, since any basis adjustment would apply to the shares that I sold.

Example 2 is similar, but significantly more complex:

  • 8/30: Holding 3000 shares from various lots
  • 8/31: Buy 347 shares from ESPP purchase, lot A, basis at $20/share
  • 9/22: Deposit 1972 shares from RSU grant, lot B, basis at $40/share
  • 9/25: Sell 1427 shares from lot B at $35/share
  • 9/25: Sell 175 shares from older lot C, with a basis of $20/share (NO LOSS)
  • 10/3: Sell remaining 545 shares from lot B at $35/share
  • 10/13: Sell 600 shares from older lot D, with a basis of $20/share (NO LOSS)
  • no further transactions until 12/15

Here, the two sales from lot B (9/25 and 10/3) seem to qualify as wash sale losses. The candidates for replacement shares for the 9/25 sale are the shares from lot A (8/31, still held today) and lot B (fully sold). My interpretation of this from IRS Publication 550:

More or less stock bought than sold. If the number of shares of substantially identical stock or securities you buy within 30 days before or after the sale is either more or less than the number of shares you sold, you must determine the particular shares to which the wash sale rules apply. You do this by matching the shares bought with an equal number of the shares sold. Match the shares bought in the same order that you bought them, beginning with the first shares bought. The shares or securities so matched are subject to the wash sale rules.

is that the replacement would be the entirety of lot A, plus shares of lot B. The only replacement candidates for the 10/3 sale would be shares in lot B, regardless of the treatment of lot A, since lot A was acquired more than 30 days prior to the 10/3 sale.

Again, it seems to me that the losses should be deductible as in my example 1, other than possibly the 347 shares that might match lot A.

Advice would be appreciated.

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    "The shares deposited on 3/20 are the only candidates for 'replacement shares' whose basis should be adjusted per IRS rules. But those are also the shares I sold." The wash sale rule doesn't care which shares you sold. It only cares how many shares you sold and when you sold them. You cannot change the effects of the wash sale rule by designation of shares or accounts because the wash sale rule kicks in before such designations.
    – David Schwartz
    Commented Jan 12, 2022 at 22:57

2 Answers 2

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In example 1, there is no wash sale.

In example 2, you increase the basis of the 347 shares in lot A by $5 per share (the amount of the wash loss). You cannot take the loss on 347 shares of the lot B sale on 9/25, but you can take the loss on the rest of that sale and on the 10/3 sale.

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The transfer of stock from a employee stock purchase plan should not trigger the wash rule. However, the purchase of stock inside a stock purchase plan will. Therefore, I am not sure what is going on. It appears to me, that you are buying these shares, maybe indirectly, with your labor. Therefore, I am thinking that that the wash rule will be triggered in both cases.

I might be able to give you a better answer if I knew more about how you purchased these shares. Did you buy them all at once? or through out the year?

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