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On Fri, 09 May 97 09:00:58 -0600, dmeredit wrote:

A fairly simple question...more of a confirmation than anything...

I have read your Wash Sale FAQ and have studied a couple of chapters in a Tax book about it, but, just before I start dropping the appropriate items into my Quicken register, I thought I better confirm my understnding first.

In this case, I purchased 500 shares of ATCT at about $14 (ouch). Recently, when the stock was trading at $3 1/4, I purchased more, on the basis I could afford it and I believed the Company was undervalued at that point. When the Company reached $5, I decided to sell my 500 low cost basis shares (as I was still within the 30 day wash sale period) and take a quick profit to invest eslewhere.

Now, on most trades, my E-Trade discount broker allows me to select specific shares on a sale. For some reason, on this trade, it did not and the trade executed immediately, selling the high cost basis shares (which I had intended to hold onto as a long term play).

With my understanding of the wash sale, I cannot record the sale as a loss. Instead, I have to account for my current 500 (originally low cost basis) shares as having a price of cost basis of 12.25 ((500*14+500*3.25 - 500*5) / 500).

If the above is correct, then I am assuming that, if I subsequently sell my remaining shares at say, $10, then I can claim a loss of $2.25 per share on the 500 shares. I am also assuming that this applies whether or not this is a long term or short term capital gain.

Thanks for your help>>

You might want to go back to the Taxes FAQ area and read the post regarding specifying stock. If you qualify, you should be able to "specify" your gain shares, and report the gain, and not be concerned with the wash sale rules. You should be able to over ride your e-trade software, and allow the gain sale, just like you wanted.

Since your ATCT will be a long term hold, it will probably bridge two different tax years. That being the case, if you decided to take the "loss" shares, you are correct in assuming that you would run afoul of the wash sale rules, and would therefore have a basis adjustment. But that may not be a bad thing, depending upon your individual tax situation. If you take the gain, you'll have to pay tax on that gain. But if you take the loss, and wash it, you'll have no tax liability even though you have cash in your pocket. Of course, if you have other losses to offset the gains (on the gain sale), this point may be very moot.

So check it out. If done corectly, you should be able to go either way with it, and use the sale to your tax advantage.

TMF Taxes
Roy Lewis
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