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Author: JackBNimble Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75530  
Subject: "Wash Out" Questions.... Date: 8/31/1999 8:38 AM
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I hope some of you kind folks can help me out as you have several times in the past.

I'm trying to make sure I'm clear on the wash out rules for trading stocks. My primitive understanding of the subject goes something like this:

A person buys 100 shares of xyz corp for say, $20. After holding it for a couple of months the price is now $14 and he sells in order to take the capital loss. Now as I unsderstand it, one cannot take the loss if the stock is repurchased within 30 days. Someone recently told me the waiting period was 60 days, so I'm not even sure which is correct here. But whatever the correct time is, if we put that aside for a moment, and assume that requirement has been met, then one should be able to repurchase the stock and still take the loss on the original shares. Is this correct?

Now for another more complicated scenario. The same 100 shares of stock is purchased for $20 and just two weeks later it's been beaten down to $14. Rather than selling, one purchases an additional 100 shares of stock at $14 to lower the cost basis. After holding the original 100 shares for 30 days (or whatever the correct time period is), can these then be sold to take the loss on the original shares based the "first in, first out" (FIFO) method of accounting? Is this correct, or must there also be a thirty day wait between the 1st and 2nd purchase? Must the second lot of stock purchased also be held for some minimum amount of time as well before selling the first?

As you can see, I'm not very clear on this subject so any clarification would be most appreciated!

Jack
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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13557 of 75530
Subject: Re: "Wash Out" Questions.... Date: 8/31/1999 12:46 PM
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1) The Wash Sale rule is for 30 days before AND after the sale, thus 61 days (30+1+30).

2) The rule applies both 30 days prior and after. There is no "minimum held" time. Here's an example.

6/1/99 - buy 100 of XYZ @ $100
8/31/99 - sell 100 of XYZ @ $50

The wash sale rule will apply if shares of XYZ are purchased from 7/1/99-9/30/99.

jbw

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13564 of 75530
Subject: Re: "Wash Out" Questions.... Date: 8/31/1999 2:14 PM
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I hope some of you kind folks can help me out as you have several times in
the past.

I'm trying to make sure I'm clear on the wash out rules for trading stocks.
My primitive understanding of the subject goes something like this:

A person buys 100 shares of xyz corp for say, $20. After holding it for a
couple of months the price is now $14 and he sells in order to take the
capital loss. Now as I unsderstand it, one cannot take the loss if the stock is
repurchased within 30 days. Someone recently told me the waiting period
was 60 days, so I'm not even sure which is correct here.


The correct time is from 30 days prior to to 30 days after the sale creating the loss.(except for short sales). Total, 60 days.

But whatever the
correct time is, if we put that aside for a moment, and assume that
requirement has been met, then one should be able to repurchase the stock
and still take the loss on the original shares. Is this correct?


Yes. You mean you met the requirement for buying the replacement shares more than 30 days before or after the loss sale and hence it is not considered replacement stock and you can then take the loss.

Now for another more complicated scenario. The same 100 shares of stock
is purchased for $20 and just two weeks later it's been beaten down to $14.
Rather than selling, one purchases an additional 100 shares of stock at $14
to lower the cost basis. After holding the original 100 shares for 30 days


Do you mean an ADDITIONAL 30 days after the second purchase, or just for 30 days?

(or whatever the correct time period is), can these

Which are "these"? the original at $20, or the second set at $14?

then be sold to take the
loss on the original shares based the "first in, first out" (FIFO) method of
accounting? Is this correct, or must there also be a thirty day wait between
the 1st and 2nd purchase? Must the second lot of stock purchased also be
held for some minimum amount of time as well before selling the first?


I don't know exactly what the question is, but if you hold "replacement" shares that were purchased 30 days before or after a loss sale, you have a WashSale and cannot take the loss, but must add it to the basis of the replacement shares.

Regardless of what you meant or said you had three transactions leaving one open replacement after closing one with a loss sale, and you must apply the rule on the basis of however you managed to handle FIFO or specific shares--take your pick. Sorry I couldn't follow your example. The only length of time involved in the rule is from date of sale to date of replacment purchase. Does that answer your questions? Ed

As you can see, I'm not very clear on this subject so any clarification
would be most appreciated!

Jack


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