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Author: dvdre Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Twist on the wash sale rule Date: 11/13/1999 10:24 AM
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I'm sure this has been answered before,
but I couldn't find the question in the last
100 posts.

I know that after you sell a stock at a loss,
you have to wait at least 30 days to buy it
back -- if you want the loss to be deductible.
Otherwise it is a wash sale.

What about if I buy the same stock, then sell
the old stock a day or two later? What are the rules
when the buy comes before the sale.

Example:

I own 100 shares of MAT with a current loss of
about $1,000. If I sell now, I can get a tax
break of more than $350 on my loss.

But I haven't given up on MAT.

I have been thinking of buying maybe 40 shares
in my new brokerage account, and selling the 100
shares in my old account (different company).

Do I have to wait 30 days between the buy and
the sell?
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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21070 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/13/1999 10:38 AM
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dvdre writes (in part):

I know that after you sell a stock at a loss,
you have to wait at least 30 days to buy it
back -- if you want the loss to be deductible.
Otherwise it is a wash sale.

What about if I buy the same stock, then sell
the old stock a day or two later? What are the rules
when the buy comes before the sale.


I reply:

It's still a wash sale. The wash sale rule is triggered if you buy the replacement stock within 30 days before or after the sale for loss. --Bob

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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21071 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/13/1999 10:49 AM
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It's plus or minus 30 days, so the wash sale rule applies. See Page D-3 of your 1998 Form 1040 Instructions. It doesn't matter who you trade with, either.

There has been some discussion about whether this is still true when you trade within an IRA and in a regular account, with the same stock. Opinion is divided. I'm too ignorant to have an opinion.

As you probably know (but I'll repeat), the wash sale rule doesn't really disallow you from taking the loss. Effectively, you take the loss when you finally close out your position. What you are prevented from doing is balancing the loss against gains immediately, as you might wish to do for tax purposes.

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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21121 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/14/1999 7:10 PM
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There has been some discussion about whether this is still true when you trade within an IRA and in a regular account, with the same stock. Opinion is divided. I'm too ignorant to have an opinion.

Why is there any doubt that the wash sales rules apply? I'm assuming that I sell Security A at a loss today, and within 30 days before or after this, Brokerage House, custodian of my IRA, buys the same security.

The statute says says that 'if the taxpayer has acquired' the security, the wash sale rules bar the loss. Is anyone suggesting that I am not 'the taxpayer' with respect to this custodial account?

I don't have to report current income from dividends or gains within my IRA, because another section of the Code says don't report those until later. But I am 'the taxpayer.'

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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: 21130 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/14/1999 11:37 PM
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Why is there any doubt that the wash sales rules apply? I'm assuming that I sell Security A at a
loss today, and within 30 days before or after this, Brokerage House, custodian of my IRA,
buys the same security.


The problem is that there was never any intention to *deprive* you of the Wash loss, just defer it. There is no way to add the loss to the basis of your IRA stock so there is no "remedy", and there is no way to recover the loss.

Also you may be the "taxpayer" but there is an independent Trustee that owns the IRA stock. You may be that Trustee, but it is not personal "you". In most cases it is a Mutual Fund Family, a bank, etc. They may have created Wash Sales, Constructive Sales, and Short Sales, for you you'll never know about.

I think you can safely ignor this problem unless you abuse it, but what do I know. Ed


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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21143 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 8:23 AM
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I think you can safely ignore this problem unless you abuse it, but what do I know. Ed


Well, that's exactly my question. What does 'abuse it' mean. Let's assume the facts I presented earlier, with an extra twist:

I recognize thousands of dollars of LTCG in my nonsheltered portfolio, and, to cut my tax burden, I sell my entire holdings of Stock X (which I've held for over a year) at a loss. Within the 30 day window I also buy a large position (same number of shares that I've sold) in Stock X in my IRA.

I don't want to prepare my return on the theory that the IRS won't know about the 2 transactions. Can I claim the loss or not?

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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: 21152 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 1:41 PM
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Well, that's exactly my question. What does 'abuse it' mean. Let's assume the facts I presented
earlier, with an extra twist:

I recognize thousands of dollars of LTCG in my nonsheltered portfolio, and, to cut my tax
burden, I sell my entire holdings of Stock X (which I've held for over a year) at a loss. Within
the 30 day window I also buy a large position (same number of shares that I've sold) in Stock X
in my IRA.

I don't want to prepare my return on the theory that the IRS won't know about the 2 transactions.
Can I claim the loss or not?


Well, do you really have to buy the SAME number of shares of the SAME stock within 30 days?

If you HAVE to protect your position, buy the IRA stock and wait 31 days to sell the original stock, or sell a Covered Call against the original stock and then buy the IRA. There's gotta be a way. Ed

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Author: phooley Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21154 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 2:27 PM
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I recognize thousands of dollars of LTCG in my nonsheltered portfolio, and, to cut my tax burden, I sell my entire holdings of Stock X (which I've held for over a year) at a loss. Within the 30 day window I also buy a large position (same number of shares that I've sold) in Stock X in my IRA.

FWIW, I found several threads on this topic in a Usenet newsgroup (misc.taxes.moderated) -- the following quote is from what I think is the most recent (1999/04/30), most definitive post:

> What if you buy the stock back in an IRA account after
> taking a loss in a taxable account?

This question comes up often here, and there are two
different opinions:

a) An IRA is separate from all other acocunts you control
in that you do not have capital gains or losses within an
IRA; indeed, what would otherwise be a wash sale outside
an IRA is not a wash sale within. In addition, if you
assumed a wash sale could be generated by selling at a
loss outside an IRA and then buying within an IRA, there
is no remedy for you in that you cannot increase the
basis of the shares purchased to make up for the
disallowance of the wash sale. Conclusion: No wash sale.

b) The code says wash sales include shares controlled by you
or your spouse, even if in corporations you control. You
have control of what is in an IRA so it is a wash sale.

No one knows of any definitive ruling, nor do I think
anyone, either the IRS or tax professional, wants to push
hard on this one. Unless and until the IRS adopts the
position and fights for it that there is a wash between
shares in an IRA and other shares, I suspect sleeping dogs
will continue to lie.


Ron

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Author: vargaj Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21158 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 4:54 PM
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Ron:

I'm totally with you on this issue. The IRS has had ample opportunity to 1) make a difinitive ruling on the issue 2) Establish reporting requirements for IRAs. It has chosen to do neither. Anyone who reports a wash sale under these circumstances is going WAY beyond the call of taxpayer duty. For myself, I will never even check my IRA activity to determine whether or not such a sale took place. I've got better things to do.

Joe Varga

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21172 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 6:30 PM
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<<Why is there any doubt that the wash sales rules apply? I'm assuming that I sell Security A at a loss today, and within 30 days before or after this, Brokerage House, custodian of my IRA, buys the same security.

The statute says says that 'if the taxpayer has acquired' the security, the wash sale rules bar the loss. Is anyone suggesting that I am not 'the taxpayer' with respect to this custodial account?>>

In non-technical terms, this is exactly the way that I believe that IRS would look at the issue. You have control over the accounts, therefore you would remain the taxpayer...and the sale would be considered a wash sale.

The courts have said basically the same thing. Thaks for cuttin' through all of the crap and puttin' it right out there.

TMF Taxes
Roy



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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: 21177 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 6:52 PM
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n non-technical terms, this is exactly the way that I believe that IRS would look at the issue.
You have control over the accounts, therefore you would remain the taxpayer...and the sale
would be considered a wash sale.

The courts have said basically the same thing. Thaks for cuttin' through all of the crap and
puttin' it right out there.

TMF Taxes
Roy

You're legally correct, Roy, but from a practical standpoint the Rule specifically was to *delay* the loss, not prohibit it. If you adjust your loss how do you adjust the basis of the stock in the IRA?

Lets say you have a $1,000 loss. Do you deposit $500 into the IRA and take a tax deduction for $1,500? Or do you wait 50 year to when you withdraw and not count the first $1,000 you withdraw?

I think you should just ignore that it is a wash sale and ask the revenue agent how you will ever get it back if he makes you adjust the wash sale. Ed

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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21186 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 8:57 PM
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My question on this would be why would you want to sell at a loss and turn around and buy the same stock again? If the stock hasn't performed to date, just generated a loss, what makes you think it will now generate a gain? Are the financial metrics so good that it still looks like it might gain in the future? Just wondering...

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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: 21190 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/15/1999 9:31 PM
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My question on this would be why would you want to sell at a loss and turn around and buy the
same stock again? If the stock hasn't performed to date, just generated a loss, what makes you
think it will now generate a gain? Are the financial metrics so good that it still looks like it
might gain in the future? Just wondering...


That's a very good point, RooCat. Evidently enough people found it to be to some advantage that the IRS got on their case with their "rules".

Actually, they are long term holders waiting for the stock to rebound, but now they could realize a loss for taxes without disturbing their long term position, they want to take it and the IRS is preventing that with the Wash Sale Rules. Ed

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21257 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/17/1999 8:24 AM
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<<You're legally correct, Roy, but from a practical standpoint the Rule specifically was to *delay* the loss, not prohibit it.
If you adjust your loss how do you adjust the basis of the stock in the IRA?>>

An excellent point...and one that I have no answer to. As you state, the wash sale rule doesn't look to prohibit your loss...simply delay it. If you were messin' between a taxable and an IRA account, it is very possible that you could LOSE the tax benefit of that loss.

<< Lets say you have a $1,000 loss. Do you deposit $500 into the IRA and take a tax deduction for $1,500? Or do you
wait 50 year to when you withdraw and not count the first $1,000 you withdraw?>>

Again...I wish I knew. But there is absolutely no guidance on this issue from the IRS. I believe that you MIGHT be able to make a case for a basis adjustment in your IRA for the "lost" losses...but it would be a difficult case to make. And this is just another reason that (in my opinion) it's not worth screwing around with the wash sale rules in two separate accounts...especially if one of those accounts is an IRA (or other tax deferred account).

<< I think you should just ignore that it is a wash sale and ask the revenue agent how you will ever get it back if he makes
you adjust the wash sale.>>

But he doesn't have to tell you how to get it back. That's your problem. If you have violated the rules, then your position is your position. I don't want to be the one to have to climb that hill.

Again...you make valid points from a practical standpoint. But it's still not something that I would want to throw in the face of the IRS and have them decide. Just my personal opinion.

TMF Taxes
Roy

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Author: HatchetJack One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21268 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/17/1999 9:21 AM
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I know I am coming to this discussion a little late but I don't see the problem with the IRA. It is neither a related person as defined under Section 267 or a taxable transaction. A wash sale results when a taxpayer sells stock or securities at a loss and within 30 days before or after the sale, buys, in a fully taxable trade, substantially identical stock or securities.

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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21302 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/17/1999 10:18 PM
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The problem is due to the actual language of the statute: if 'the taxpayer has acquired' stock that has the 30-day baggage, then no loss, etc.... Has nothing to do with what the intent of the rule is about deferring or denying the loss -- this is a situation in which the plain meaning of the statute is clear.

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Author: HatchetJack One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21305 of 121565
Subject: Re: Twist on the wash sale rule Date: 11/17/1999 11:16 PM
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Yes, and I believe that "has acquired" only applies in a taxable purchase, not one in a qualified retirement account however directly or indirectly controlled by the taxpayer. The enforcement aspects of any other reading is mind boggling, even worse than the option collar where the loss on the put is supposed to be added to basis and the gain on the call is ordinary in effect.

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