wash sale rule on final disposition

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spinnaker87
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wash sale rule on final disposition

Post by spinnaker87 » Fri Apr 20, 2018 2:24 pm

if you incur a wash sale.. and you final disposition is a loss (and not buy back or sell short the security) is the wash sale loss recovered in the final sale that is a loss.

or must the final sale be a profit?

thanks.

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Earl Lemongrab
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Re: wash sale rule on final disposition

Post by Earl Lemongrab » Sat Apr 21, 2018 1:44 pm

All the wash does is change the basis of the "replacement shares". You can sell those for loss if they are in taxable.
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spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Sun Apr 22, 2018 2:06 pm

thanks.. so loss or profit you get to declare the loss as long as you don't trade the same stock for 31 days prior to Dec 31 of that year?

another iteration of this question... if you have a string of wash sales during the year.. and don't trade that stock for 31 days prior to Dec31 of that year. than you can claim all your losses for that year and not have them deferred to the next year? am I correct on that? thanks

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Earl Lemongrab
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Re: wash sale rule on final disposition

Post by Earl Lemongrab » Sun Apr 22, 2018 2:16 pm

spinnaker87 wrote:
Sun Apr 22, 2018 2:06 pm
thanks.. so loss or profit you get to declare the loss as long as you don't trade the same stock for 31 days prior to Dec 31 of that year?
It's only about what you buy during the exclusion window.
another iteration of this question... if you have a string of wash sales during the year.. and don't trade that stock for 31 days prior to Dec31 of that year. than you can claim all your losses for that year and not have them deferred to the next year? am I correct on that? thanks
The basis gets adjusted immediately. There's no holding period.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Sun Apr 22, 2018 3:57 pm

so if you don't buy the same stock for 31days you count the losses and no deferral..

key is to wait 31 days after the last sale during the year and not buy the same stock to count previous wash sales as losses for that year and not have any deferred losses. correct?

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Sun Apr 22, 2018 4:32 pm

I think you're missing the point. There is no "holding period". Each wash sale is treated as a stand alone event and adjusts the basis of your shares.

So when you get your 1099 at the end of the year, each of those sales will have it's own wash sale adjustment. Even if you make all your trades in January... the passage of the rest of the year won't "wash away" the wash sale adjustment.

You seem to be trying to "eliminate" the wash sale adjustments by letting time pass... it's not relevant

If you sell all the shares, the accumulated wash sale adjustments will be in your final basis

Mike

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Sun Apr 22, 2018 6:39 pm

so if you stop trading by december with accumulated wash sales the losses are not deferred to the next year?

the 31 days is critical for not rolling the wash sales forward into the next year? correct?

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Sun Apr 22, 2018 7:09 pm

Sorry, I am not sure how many different ways it can be said...the wash sales are a part of each trade. Those suspended losses on each trade are added to your basis. So stopping in December, October, July, or April is irrelevant.

The loss is deferred until you sell those shares in a non wash sale transaction. The wash sales don't "roll" anywhere...

Maybe this example will help

You have 100 shares you bought at $10, cost basis $1000, say Jul 1

You sell 50 at $9 on Aug 15th, so proceeds of $450, basis of $500, loss of $50

You then buy 50 shares of the same stock on August 30th for $11. Since you bought as many as you sold, the entire loss is tagged as a wash sale, and the $50 loss is added to your basis. So now you have 100 shares, with basis as:

the 50 shares from Aug 1, 50 shares at $10, $500
the 50 shares from Aug 30th, 50 shares at $11, $550
and the $50 wash sale loss which is added, so your overall basis is $500+ $550+ $50= 1100

You "recover" that wash sale loss when you sell those shares. So let's say in October you sell the 100 shares at $12, proceeds $1200

Even thought you have a profit, it is reduced by the $50 wash sale you had added to your basis. So instead of the gain being $150 ($1200-500-550)
it's only $100

Notice that there are no trades any where near December... Your loss is added to the basis so you get credit for that amount when you have a non wash sale transaction, whether 2 months, 2 years, or 20 years later

Hope that helps

Mike

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Earl Lemongrab
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Re: wash sale rule on final disposition

Post by Earl Lemongrab » Sun Apr 22, 2018 7:41 pm

spinnaker87 wrote:
Sun Apr 22, 2018 6:39 pm
so if you stop trading by december with accumulated wash sales the losses are not deferred to the next year?

the 31 days is critical for not rolling the wash sales forward into the next year? correct?
It's not clear what you're asking. The end of the year only matters for realized losses. Wash sales prevent losses from being realized, instead they adjust the basis.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Mon Apr 23, 2018 6:49 am

let's say i have 2 wash sales both losses.

buy 200 sales of x stock in jan4. sell 200 sales of x stock jan6th at a loss of $300. buy back 200 stock jan 8th. sell 200 stock jan 10th at a loss of $500

so have 2 wash sales back to back.

are my losses at the end of the year $800 for the 2 wash sales?

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Mon Apr 23, 2018 7:48 am

Since the general example above wasn't clear enough for you to follow and apply to your situation, let's take your example and hopefully put this one to bed

purchase 200 Jan 4th
Sell all 200 Jan 6th, loss of $300. That would be deductible, but then:

Purchase 200 back on Jan 8th. Since you purchased same amount as sold on the 6th, the $300 loss gets added to the basis of the shares you have just purchased

Sell 200 on Jan 10th at $500 loss. The loss is really $800, as you basis from the Jan 8th purchase was adjusted up by $300 wash sale loss

If this was your entire position in the stock, and you didn't re purchase it again in the 31 day window, you're done, and you get your full $800 loss, it just all applies on the second transaction

If you bought it back again (200 shares) in the 31 day window, then the full $800 loss gets added to your basis in the new purchase... and so on

Hopefully this helps

Mike

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Mon Apr 23, 2018 8:14 am

thanks

so basically you can have multiple wash sales on the same stock during the year.. but if you stop trading 31 days prior to dec 31 they are counted for the year and not deferred into the next year? correct?

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Mon Apr 23, 2018 8:45 am

Sigh... you can have multiple wash sales on the same stock during the year and end up with the total loss being deducted. The key is not Dec 31st, or 31 days in front of that.

It's disposing of the position that has the accumulated wash sales added to it's basis. Sp to extend the example I previously did with your 2 sales, assume instead of the Jan 10th sale being your final transaction in that stock, let's assume you continued to do that, trading once a month, and getting a $200 loss each time.

You then make your final sale Dec 20th, disposing of the 200 shares, and all of the accumulated losses that have been added to your basis. So you had $800 from your January transactions, and you kept buying each month, and selling for a loss of let's say $200, so by December, you have accumulated an extra $2000 of wash sale losses to go with your $800, so now when you sell those shares on Dec 20th, your cost basis is what you paid for those 200 shares plus $2800, and that will determine your profit and loss

Simply stopping trading, whether on Jan 10th or Dec 1st, won't free up the losses. It's disposing of the position, and not re entering it within 31 days

The loss may also be utilized to reduce the gain...

As opposed to continuing to have losses, let's say in February, you buy it again... so we have 200 shares and you sell them 10 days after for a $1000 profit. BUT... you had an extra $800 added to your basis because of your January wash sales... so your profit is only $200. Same effect, you get to claim your loss... but now there is no ongoing wash sale... it was used to increase your basis and reduce your profit. This assumes of course you are trading in hopes of making a gain.

Mike

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BL
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Re: wash sale rule on final disposition

Post by BL » Mon Apr 23, 2018 8:53 am

https://www.bogleheads.org/wiki/Wash_sale
I believe you might want to sell all the stocks that created a wash if you want to " clean things up".

I don't believe you understand it yet, and probably shouldn't be doing this until you do.

IRS Pub 550 is the final authority on all of this, and is on the IRS website.

Edit:
Selling is the key, not waiting. (Waiting is to avoid it in the first place!)
Last edited by BL on Mon Apr 23, 2018 9:02 am, edited 2 times in total.

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Mon Apr 23, 2018 8:54 am

thanks Mike.

I think you basically said that would be a yes.

accumulated wash sales on the same stock.. wait 31 days and it's adjusted. correct?

so if i have accumulated wash sales every month of the year as an extreme example on the same stock.. sold off entire position on Nov 30 and not trading in Dec the wash sales are counted for that year. (I can then trade in Jan of the following year without adjustments. correct?)

that's why I am using the Dec example. I don't want to carry over wash sales to the next year. does that make sense?

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Mon Apr 23, 2018 9:13 am

no, unfortunately you still don't understand... It's not the waiting 31 days that makes the loss "adjust"

It's disposing of the position that has the wash sale loss added to it, and not re purchasing within 31 days.

So to go back to the example above, where after 2 trades in January you have an $800 loss after the second round trip in January. If you do not buy the stock again in 31 days, that loss comes thru.

However, let's say you buy the stock on Feb 1, 200 shares. Now that $800 is a wash sale loss, and is added to your basis. If you do NOTHING the rest of the year, that $800 will still be added to your basis on the Feb 1st transaction. it does not "adjust" itself away.. it only gets dealt with as part of another sale, which can be for a profit or a loss, the wash sale is added to the basis to determine your profit. you could hold those 200 shares 5 years, and the wash sale will still be in the cost basis when you sell

so to try yet again one more time... it's not the waiting period that makes it go away... it's a sale transaction.

So if you sell for the last time Dec 20th (for a loss) and don't buy back for 31 days, then the wash sale is gone

You have been pointed by BL to a couple of good resources as well. I suggest you study those a bit and work thru a couple of examples to better understand this.

Mike

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Mon Apr 23, 2018 9:16 am

if i have accumulated wash sales every month of the year as an extreme example on the same stock.. sold off entire position on Nov 30 and not trading in Dec the wash sales are counted for that year. (I can then trade in Jan of the following year without adjustments. correct?)

in this case I have disposed of all shares in Nov 30 and not purchased in Dec just like you said... ????

fabdog
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Re: wash sale rule on final disposition

Post by fabdog » Mon Apr 23, 2018 9:26 am

yes, that would work... but that final transaction does not have to happen in November... it can be in December, as long as it settles before end of the year, and you don't re purchase within 31 days.

So what you've outlined would certainly work, but you are not limited by the 31 days on your final transaction... that's the window that if you re purchase, the wash sale comes back into effect

Mike

spinnaker87
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Re: wash sale rule on final disposition

Post by spinnaker87 » Mon Apr 23, 2018 9:29 am

thanks! I think I have it now.

when I was saying waiting 31 days I meant after I disposed of the shares.. I think that's where the confusion was. thanks for your help

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