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Please help me understand the change in cost basis if I sell my $15 shares. Suppose I sell all my $15 shares for $13.50 for a $1.50 loss per share. Does that increase my basis on my $13 shares to $14.50? Also, what is the time frame to avoid the wash sale situation?

I realize the tax consequences are not substantial at this stage but I am trying to understand the basic principles. The "take your losses early and let your gains ride" advice really helps. Thanks in advance. I really appreciate the wisdom on this board.

See IRS Pub. 550, Investment Income and Expense, for full details. Basically, you add the loss per share from the sold shares to the same number of shares in the earliest block you purchased (that you still own) within 30 days before to 30 days after the date of sale.

In your case, lets assume you bought 200 shares at $13 on 4/19, 200 shares at $14 on 5/1 and 200 shares at $15 on 5/10. You want to sell 200 shares at $13.50. If you sell the "5/10" shares, you will have a loss of $300 ($1.50/share). If you sell before 5/20, you will adjust the basis of the 4/19 shares so that they will have a cost basis of $14.50. If you sell after 5/20 but before 6/2, you will adjust the cost basis of the 5/1 shares so that they will have a cost basis of $15.50. If you sell after 6/1, you can take the loss on your 2004 tax return and do not adjust the basis of the other two blocks of stock, PROVIDED you do not purchase any additional shares of the company in the 30 days following the sale.

Read through the examples in the IRS Publication. If you still have questions, come back and ask and we'll provide more guidance.

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