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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Wash rule! Is the IRS kidding?? Date: 8/26/2001 6:08 PM
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Need some REALLY BIG help!! I bought 1000 shares of XYZ and sold the stock for a short term profit of $2000.00. 5 days later, after I saw the stock tank I repurchased 1100 shares and I began to see the stock making me more profits. However, the stock reversed course and hit my stock loss quote for a loss of $1500.00. I figured I had a net profit of $500.00.

Yes and no. What you really have, at this point, is a $2,000 gain and a $1,500 loss. If you don't trade in XYZ again in 2001 your 2001 Schedule D will show a bottom line (for XYZ) $500 gain.

The $2,000 gain will appear on your 2001 return, regardless of what else you do.

If you want to recognize the $1,500 loss, you must wait to purchase XYZ until 30 days have passed after the sale for a loss. If you buy before that time is up the wash sale rule kicks in, and you add the $1,500 loss from the previous sale to your basis for this purchase. The loss doesn't disappear, but it doesn't affect your taxes until you sell the replacement shares. See IRS Publication 550.

I'm not a big proponent of short-term trading, but you seem to be, so stop and think about things. If you really think XYZ is going to move up in the short term, and you intend to sell it when it does, the wash sale rule shouldn't affect your action. Go ahead and buy it, adding the previous loss to your basis. When you sell, that deferred loss will reduce the taxable gain from the sale. IOW, it all comes out in the wash.

A side note. I hope the "16" in your name refers to your age. That would explain the all-caps rant, which I just skimmed to save my eyes, and the fact that you don't seem to have yet had civics class, in which you will learn that Congress, not the IRS, writes the laws.

Phil Marti
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