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I've been told by TdAmeritrade that disallowed losses related to an underlying will be reconciled once all positions, including options are closed and a period of 30+ days passes with no activity with the underlying.

With no position in this closed underlying for months, I'm not seeing a reconciliation. IOW, a loss has not returned on the books where previously it was disallowed. Do I have to repurchase the underlying in order for the basis of those new shares to reflect the prior disallowed losses?

I appreciate very much some clarification on this matter.


Thanks,

HP
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A bit more in the way of details is necessary. Specifically, what kind of disallowed loss are we talking about here?

Passive activity loss?
Net operating loss?
Capital loss?
Wash sale?
Mark-to-market?
Publicly traded partnership?
Something else?

What are the transactions that gave rise to the loss?

--Peter
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My guess is that you had a wash sale due to options. If this is true, you should contact TD Ameritrade and ask if they are able to correct the tax basis or whether you need to do in manually on Schedule D.
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Thx, Peter.


The disallowed losses are due to wash sales.
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Yes, Vkg, the disallowed losses are wash sales due to options. My first attempt discussing the matter with TD Ameritrade was like 2 people speaking different languages.



HP
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The disallowed losses are due to wash sales.

With a wash sale, the disallowed loss is added to the basis of the replacement shares. When those shares are sold and are not part of another wash sale, the previous wash sale loss is included as part of that transaction. There is no separate reconciliation or added item to report.

--Peter
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What if the investor does not want to own shares in the underlying involved with the disallowed losses?

Your explanation, Peter, seems to imply that shares would need to be bought, (the "replacement shares") to have the disallowed losses transferred to the basis of the new shares?

Thx,

HP
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What if the investor does not want to own shares in the underlying involved with the disallowed losses?

You said this mystery loss was due to wash sales. But your question above implies that you no longer own the stock. (It also implies options may be involved, which muddies the waters very quickly.)

Let's define a wash sale. To have a wash sale, you buy a stock, sell it at a loss, then repurchase the same stock in a window of 30 days before to 30 days after the sale at a loss.

The key is that you start with some security and end with a substantially identical security, with a sale and purchase in between.

If you don't have this basic pattern, you don't have the potential for a wash sale. If this doesn't fit your fact pattern, let us know what did happen to create this mystery loss.

--Peter
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Sorry for the confusion.

I have 2 cases of fumbling options trading causing wash sales.

1. TSLA - I have owned shares continuously for about a year. My position got all messed up during the 'go private @420' tweet by Elon Musk. I closed short puts, short calls at losses, which are on the books as disallowed losses. It is my understanding that if I close all options contracts and sell the shares I own, that the disallowed losses would get rolled into the basis of the long shares. If this is correct, I plan on closing the entire TSLA position in November or sooner.

2. NFLX - in this case I did not own shares in 2018 or thus far in 2019. I messed this up by having a few naked calls in 2018, and short puts in an attempt to cover the short calls. The stock collapsed from 350 to 270 in 4 months (Sept-end of year). I incurred losses by closing short puts and some were considered disallowed. I don't want to buy shares of this company in the foreseeable future, and don't understand how to get the disallowed losses changed to actual losses, which I need to offset profits in 2019.


My hope is to do something useful for you, Peter. I can only offer pottery classes and art pottery.
The gallery and studio is in Houston, however.

I have family in Long Beach, and my brother got his undergraduate degree in Philosophy at UC Irvine in 1972 :)


HP
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I have 2 cases of fumbling options trading causing wash sales.

Ok - options it is. In some ways, that makes my responses easier. For me. I have refused to spend the time to figure out options and wash sales. So my answer is simple. "I dunno." I don't know how you got into the wash sale position, I don't know if your purported wash sales are actually wash sales, I don't know how to get out.

Except that I will make a side comment on your Netflix. If you own no stock and no options, you should not have any outstanding wash sale issues. Wash sale issues always come to an end when you close out all of your positions and stay out for 30 days. Since that appears to be the case with Netflix, then you should not have any wash sale issues. If you believe that you do have open wash sale issues, you instead have a problem. Something is wrong. Any potential wash sales would be completed with the sale of the last affected securities.

--Peter
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