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.The above makes sense for the n < $40/share case, but my question for the n = $40/share case still exists. For the n = $40/share case, you are apparently assuming that the wash sale was of the shares purchased on 07/02/2001. But why wouldn't the wash sale be considered to be of the shares purchased on 06/01/2001 (at $40/share and sold also at $40/share) instead? In other words, is there a good reason why a zero difference between redemption and purchase price cannot be considered a loss? There's no better or worse reason why to consider such a zero difference a gain, for which the wash sale rule wouldn't apply. By considering the wash sale to be on the 06/01/2001 shares instead of on the 07/02/2001 shares, then the $10/share tax loss on the 07/02/2001 shares could fully be recognized (i.e., not disallowed).Note that if n were just $0.01/share higher at $40.01/share, then there's no question at all that there would be a net $10/share loss recognized (strictly from the 100 shares purchased on 07/02/2001). For n = $40.02/share, $40.03/share, and so on, there is still a net $10/share loss recognized. (Notice the pattern here.) On the contrary, if n were just $0.01/share lower at $39.99/share, then there's no question at all that that there would be a net $0.01/share gain recognized (strictly from the 100 shares purchased on 06/01/2001). For n = $39.98/share, $39.97/share, and so on, there would be a net recognized gain of $0.02/share, $0.03/share, and so on, respectively. (Again, notice the pattern here.) Note that these two patterns are significantly different from one another. So the question is whether n = $40/share must follow the first of the two patterns (i.e., net $10/share loss recognized) or must follow the second of the two patterns (i.e., net $0/share gain/loss recognized), or could the benefit of the doubt be used to the benefit of the taxpayer (by choosing to use the first pattern)?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 MartiVITA Volunteer
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