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Author: AKFOOL1 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Wash sale Date: 10/30/1998 3:08 PM
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Can someone tell me what is a "Wash sale"? only thing that I know is that you can't buy back a stock within 30 days. What will it effects on the income tax? and where I can find out more info. Thanks in advance.
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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: 6048 of 121095
Subject: Re: Wash sale Date: 10/30/1998 9:48 PM
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AKFOOL1 wrotes:

Can someone tell me what is a "Wash sale"? only thing that I know is that you can't buy back a stock within 30 days. What will it effects on the income tax? and where I can find out more info. Thanks in advance.

I reply:

The "wash sale rule" is the IRS's way of defeating a cute trick. Suppose you own 50 shares of Roller Coaster, Inc. (ticker: AZAZ), which has dropped in price by 50% since you bought it. You might want to sell your stock to realize the capital loss, especially if you have short term gains against which to offset it. But you also know that the stock has a habit of zooming to the heights literally overnight, so you don't want to stay out of the position for any appreciable length of time.

To "solve" this problem, you might sell your holding and then immediately rebuy it, thinking that the sale triggers your tax loss. The wash sale rule says, "no." There's nothing illegal or improper about the transaction, but the tax effect is your loss is disallowed. The amount of your disallowed loss is added to the basis of the stock you just rebought. The net effect is a wash.

"Fine," you might think, "I'm cleverer than the IRS. I'll buy the replacement shares before selling the old ones." The wash sale rule still applies, though. If you bought the new shares as many as 30 days before selling the old ones, your loss is disallowed, but its amount is added to the basis of the new shares.

TMFTaxes has a pretty good FAQ, and I think it covers this subject (among many others). His standard signature contains links to it. Good luck! --Bob

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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: 6064 of 121095
Subject: Re: Wash sale Date: 11/2/1998 12:25 PM
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[[Can someone tell me what is a "Wash sale"? only thing that I know is that you can't buy back a
stock within 30 days. What will it effects on the income tax? and where I can find out more info.
Thanks in advance.]]

As Bob78164 points out, I DO have an FAQ on this very issue that may provide you with additional detail. Check out the Taxes FAQ area (archives), and read the post on Wash Sales.

We also discuss wash sale issues in The Motley Fool Investment Tax Guide. You might want to check that out also.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.

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Author: AKFOOL1 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6076 of 121095
Subject: Re: Wash sale Date: 11/2/1998 3:22 PM
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Thanks Bob and Roy for all the info. that you both provided. They are very informative. I have also ordered the "Motley Fool Investment Tax Guide" via Foolmart today. Cathy

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Author: sanglin Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6077 of 121095
Subject: Re: Wash sale Date: 11/2/1998 3:28 PM
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I'm a CPA and I have a potential strategy that I've looked into re: wash sales. Does anyone know of a reason why I can't sell a stock at a loss in a taxable account and buy it back (inside of the 30 day window) in my IRA (Roth or traditional)? My understanding is that the IRA is a separate entity from the IRS's view and that the loss on the sale of the stock would be deductible.

Any comments?

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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: 6088 of 121095
Subject: Re: Wash sale Date: 11/3/1998 10:02 AM
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[[Thanks Bob and Roy for all the info. that you both provided. They are very informative. ]]

And don't forget to check out the Taxes FAQ area (archives) for additional discussion on the wash sale issues. It'll supplement the information that you find in the book.

[[I have also
ordered the "Motley Fool Investment Tax Guide" via Foolmart today.]]

You 'da WOMAN, Cathy!!! I hope that you enjoy the book. Don't be afraid to give it a review after reading it. And it's very possible that it'll save you tax dollars well in excess of the cost of the book. That's the information that I've been receiving from other buyers.

Thanks for the order and your question. Once you read the book, if you have any specific questions on any issues in the book, make sure to post 'em here.

TMF Taxes
Roy

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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: 6089 of 121095
Subject: Re: Wash sale Date: 11/3/1998 10:07 AM
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[[I'm a CPA and I have a potential strategy that I've looked into re: wash sales. Does anyone know
of a reason why I can't sell a stock at a loss in a taxable account and buy it back (inside of the 30
day window) in my IRA (Roth or traditional)? My understanding is that the IRA is a separate entity
from the IRS's view and that the loss on the sale of the stock would be deductible.]]

We've discussed this a number of times here in the folder. I remain of the opinion that because of the "hammer" that IRS would have with respect to the "related party" issue, and the fact that the accounts are effectively controlled by the same taxpayer, the IRS could make a very compelling argument that the wash sale rules would apply.

While there are very few cases on point regarding this issue, there are enough to indicate (at least to me) that the "control" issue is paramount. A number of tax pros agree with my position. Some don't. So you get your choice of action.

I have just found that it's not a good idea so spit into the wind, or step on Superman's cape. And that's what you could be doing if your try to challenge the IRS position on this issue.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.

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