I have accumulated a number of shares of XYZ over the years through purchases and dividend reinvestment. The latest dividend reinvestment took place within the past week. I would like to sell part of my position at a loss, would this recent dividend reinvestment trigger the wash sale rule? The sold lots would not include the most recent dividend reinvestment lot.
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2 Answers
Yes, this is definitely a wash sale. Even though you didn't actively buy replacement shares, your dividend reinvestment still counts. As a result, if you sell part of your position at a loss, that loss will be disallowed and instead used to increase the basis of your replacement shares, i.e. the dividend reinvestment. So you still get credit for the loss, just not right away. You could consider waiting 31 days after the dividend reinvestment before selling to ensure you can claim the loss this year. Or you could just sell your entire position, in which case you can claim the loss as long as you don't repurchase in the next 30 days.
Also, keep in mind that the basis adjustment only applies to an equivalent number of replacement shares. So let's say you have a $100 loss for a lot of 100 shares. You have a dividend reinvestment which gives you another 1 share. If you sell the original lot of 100 shares, your 1 share from dividend reinvestment's basis is not increased by $100, but only $100/100 shares = $1. So it may not be that big of a deal. And it's likely your brokerage's job to do the calculations and figure out the new basis.
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@Hilo Here's a link that demonstrates what Craig W has explained. See page 2-3 under "Reinvested Dividends". g2ft.com/papers/G2_MF_DRIPs_WhitePaper_final.pdf May 2, 2018 at 23:57
It seems like it does
To get around the wash sale rule, see if you can make your reinvestments in an equivalent asset, such as an ETF that gives exposure to the same stock or sector, or a competitor that has a nearly correlated trading pattern.
Some institutions make publicly traded fund wrappers specifically for people looking to tax loss harvest or otherwise effect a wash sale without affecting their basis.
