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Author: TMFGebinr Big gold star, 5000 posts Top Recommended Fools Old School Fool Supernova Phoenix 1
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Subject: Rollover of Gain question -- Pub 550 Date: 4/18/2009 12:56 AM
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Hi,

Over on the Stock Advisor Netflix board, a question has arisen about the wash sale rule and whether there is or is not a provision for protecting gains. One subscriber described selling Netflix shares at a gain and then a few days later, buying even more shares at a lower price. Another subscriber quotes Pub 550 saying that those gains are protected (and that this is the flip side of the wash sale rule). We understand the wash sale rule; that's not the question.

Here's the link: http://www.irs.gov/publications/p550/ch04.html#en_US_publink... and here's the quote:

"You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain.
...
During the 60-day period beginning on the date of the sale, you buy replacement property. This replacement property must be either common stock or a partnership interest in a specialized small business investment company (SSBIC). This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993." (emphasis added)


The question arises from the words "common stock" (bolded above). The second subscriber seems to be claiming that any common stock would qualify. Therefore, the repurchase of Netflix shares would qualify and the gain realized from the original sale is protected.

I believe that it is only the common stock of (or a partnership interest in) the SSBIC which qualifies, therefore, the realized gain is taxable and not protected.

Could you please tell me if either one of us is correct and who that may be?

Thanks,
Jim
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