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Greetings All,

I was hoping someone on the board might be able to help in answering a couple of hypothetical wash-sale questions.

1. I own IBM at a cost basis of 10000 for 3 years. I sell it today for a 3000 long-term gain to lock in 2012 tax rates. I then immediately repurchase IBM at a 13000 cost basis. It goes down in prices so I decide after 20 days that I don't want to own it and I sell it for proceeds of 12000.

Would this loss be disallowed due to the wash sale. I am a bit confused since the initial transaction was a gain but if the wash sale rule prevents you from claiming a loss on a sale of stock if you buy replacement stock within 30 days before or after the sale, it seems I would have bought the replacement stock immediately after the sale even if it was a gain so is this loss disallowed?

Similar example but I sell after 40 days for a loss

2. I own IBM at a cost basis of 10000 for 3 years. I sell it today for a 3000 long-term gain to lock in 2012 tax rates. I then immediately repurchase IBM at a 13000 cost basis. It goes down in prices so I decide after 40 days that I don't want to own it and I sell it for proceeds of 12000.

Since it is now 40 days after the repurchase would the loss now be allowed?

Thank you for your consideration.

Best,
DQ
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No. of Recommendations: 2
1. I own IBM at a cost basis of 10000 for 3 years. I sell it today for a 3000 long-term gain to lock in 2012 tax rates. I then immediately repurchase IBM at a 13000 cost basis. It goes down in prices so I decide after 20 days that I don't want to own it and I sell it for proceeds of 12000.

Would this loss be disallowed due to the wash sale. I am a bit confused since the initial transaction was a gain but if the wash sale rule prevents you from claiming a loss on a sale of stock if you buy replacement stock within 30 days before or after the sale, it seems I would have bought the replacement stock immediately after the sale even if it was a gain so is this loss disallowed?

Similar example but I sell after 40 days for a loss

2. I own IBM at a cost basis of 10000 for 3 years. I sell it today for a 3000 long-term gain to lock in 2012 tax rates. I then immediately repurchase IBM at a 13000 cost basis. It goes down in prices so I decide after 40 days that I don't want to own it and I sell it for proceeds of 12000.

Since it is now 40 days after the repurchase would the loss now be allowed?


Try approaching this with the following in mind. "The wash sale rule doesn't apply if you don't own the stock 31 days after the loss sale." Assuming that you dispose of all your shares in example 1 and don't repurchase for 31 days the loss is allowed. The loss in example 2 is allowed, period.

Phil
Rule Your Retirement Home Fool
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Wash sales don't apply to profitable sales.

The first part of your examples don't matter. Owned for 3 years and sold at a gain, end of story. The gain is realized.

Any new stock purchases or sales start a new wash sale window, but the previous profitable sale is not included.
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