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"The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so."

I understand the reasoning in a situation where someone buys XYZ in the past, sells it at a loss, and then buys it again within 30 days.

But this rule seems to also be saying that you can't deduct a loss if you buy ABC and then sell it at a loss within 30 days, even if you don't buy it back. Am I reading that correctly? It says "within 30 days BEFORE or after"

That can't be right. Do they mean:
If someone owns 100 shares of DEF and then buys another 100 shares and within 30 days of that purchase sells 100 shares, he cannot apply the sale to the more recent purchase as a loss. Does that make more sense?

Thanks.
RB
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If someone owns 100 shares of DEF and then buys another 100 shares and within 30 days of that purchase sells 100 shares, he cannot apply the sale to the more recent purchase as a loss. Does that make more sense?

Well, actually he can sell those specific shares and create a loss, but it's a wash sale, so the loss is added on to the basis of the shares he still owns.

I think the easiest way to think about it is that if 31 days after a sale for a loss you don't own any substantially identical stock, the wash sale rule is moot. IOW, when you totally liquidate a position and stay out for 30 days, everything that's been deferred gets recognized and the books balance.

Phil
Rule Your Retirement Home Fool
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"I think the easiest way to think about it is that if 31 days after a sale for a loss you don't own any substantially identical stock, the wash sale rule is moot. IOW, when you totally liquidate a position and stay out for 30 days, everything that's been deferred gets recognized and the books balance."

Excellent. Thanks. That is an easy way to look at it.
:)
RB
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But this rule seems to also be saying that you can't deduct a loss if you buy ABC and then sell it at a loss within 30 days, even if you don't buy it back. Am I reading that correctly?

They are preventing someone from buying replacement shares for a stock, and then 2 days later selling the original shares to claim the loss.
(or 1 day later or 30 days later)

As someone else posted, if you have sold all of a particular stock, and don't buy anything more for 30 days then you're done - there's no replacement shares to apply the wash sale rule to.

The IRS pub 550 says:
"This adjustment postpones the loss deduction until the disposition of the new stock or securities. "
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But this rule seems to also be saying that you can't deduct a loss if you buy ABC and then sell it at a loss within 30 days, even if you don't buy it back. Am I reading that correctly?

No. You have to have at least two different purchases plus a sale of less than all of the shares to have a potential wash sale.

--Peter
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