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100 shares of XYZ are purchased at n = $40/share on 06/01/2001.

100 shares of XYZ are purchased at $50/share on 07/02/2001.

100 shares of XYZ are purchased at $30/share on 08/01/2001.

The 200 shares of XYZ purchased on 06/01/2001 and 07/01/2001 are sold at $40/share on 08/08/2001.

You can linearly decrease all you want, but you have a wash sale of 100 shares and add the $10 per share loss to the basis of your 8/1 shares.

If you chose to specifically identify the 7/2 and 8/1 shares as those being sold, you'd have a zero gain/loss and still hold the 6/1 shares at $40 per share.

No matter how you slice it, unless you want to identify the 6/1 and 8/1 shares, thus realizing a $1,000 taxable gain and a holding of 100 shares at $50, you have no bottom line loss and retain 100 shares at $40.

See page 52 of Publication 550.

Phil Marti
VITA Volunteer
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