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I am winding down the last bit of my taxes and I have come across a situation that confuses me, probably because I got to thinking about it too much. An objective POV would be much appreciated to help me preserve my sanity!

I purchased shares in a Vanguard U.S. Growth Index fund in 1999. I set up the account with an expressed preference to reinvest any dividends. I sold all my holdings on 5/4/2001 at a slight loss on the short-term holdings (am using double-category cost basis averaging to calculate gains/losses). Now, since I reinvested dividends on a monthly basis (i.e. 4/30/01 was the most recent reinvestment when I sold on 5/4/01) to purchase more shares, do I have a wash sale on my hands?

I am thinking that NO, I don't, because I did not purchase separate shares in the mutual fund 30 days before or after the sale, nor do I maintain any assets in that fund since the sale on 5/4/01. But I read something in publication 550 (I think) that mentioned mutual funds and it confused me to a point that I am not sure I can answer this question on my own. Does anyone have any idea on this?

Thanks in advance!

Shogun
<yes, even TMFers have tax questions too> ;-)
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If you sold all your mutual fund shares in May and did not establish any new position in the fund for at least 31 days after that, it does not matter whether there was in between a wash sale or not--the math will work out the same either way. You can forget wash sale rules and just calculate your profits and losses normally.
A wash sale defers a loss for tax purposes. It does not wipe it out.
The loss in a wash sale is added to the next cost basis, effectivly being subtracted from the next profit or adding to the next loss.
You can play with the numbers. Once you got out and stayed out the requisite time, what went on previously all works out the same either way.
Best wishes, Chris
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<<Once you got out and stayed out the requisite time, what went on previously all works out the same either way.

When all of the stock is sold in one transaction that is true. If there was a partial sale in a different calendar year before the final sale then wash sale reporting would be required.

Debra
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Hi Chris,

Thanks! That's pretty much what I was thinking, too but I tend to talk myself into circles with this stuff!

It often takes and objective third party to bring me back to logical thought.

Later,

Shogun
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vkg is correct that if you sold shares in 2000, for example, you could have a loss carried forward.
However, the picture you painted is that there were no sales until 2001, and then you sold all the shares in one sale, and then did not buy more for the requisite 31 days.
In this case, you can forget about wash sales, the math is the same figuring it either way.
Best wishes, Chris
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