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Financial Planning / Tax Strategies


Subject:  Re: federal income tax questions Date:  3/4/2021  11:41 AM
Author:  ptheland Number:  132156 of 132652

The first transaction that caused the wash sale was properly handled. The cost basis was adjusted by the wash sale amount.

Perhaps I'm not explaining it well. Let me try again.

To have a wash sale, you have a sale of a stock at a loss combined with a repurchase of that same stock. (Lots of potential complications in there, but let's not go down that rabbit hole.)

When that sale is reported, the broker does not adjust the basis. They report the sale proceeds and they report the basis, if required. Then - when they are able to determine a wash sale has happened - they report the disallowed loss in box 1b of the 1099B.

That disallowed loss cannot be adjusted into the basis. It must be reported on Form 8949 as an adjustment with code W. It is this transaction in the series of transactions around wash sales that will keep you from reporting summary totals directly on Schedule D.

Separately, for the repurchased shares which caused the wash sale rules to kick in, the broker will adjust the basis of those shares for the disallowed loss on the previous sale. When those are sold it is possible for that sale to be reported directly on Schedule D when there are no other adjustments.

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