Why does TD list a wash sale adjustment?

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FoolMeOnce
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Why does TD list a wash sale adjustment?

Post by FoolMeOnce » Wed Oct 24, 2018 2:23 pm

I thought I understood wash sales but probably just don't know enough to be confused, and now can't figure out why TD Ameritrade lists a wash sale adjustment for these circumstances. Any guidance is appreciated.

1) 9/27/18: Purchased VEU at 52.65

2) 10/2/18: Purchased more VEU 51.82 (div reinvestment)

3) 10/17/18: Sold VEU at 49.23, including the above lots and older lots.

I now have no VEU lots purchased after 6/28/18.

TD Ameritrade now lists a wash sale adjustment for the 9/27/18 and 10/2/18 lots. I thought since I sold the recent lots, getting rid of the supposed replacement shares, there would be no issue. Can anyone explain this to me? Thanks.

backslash2718
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Re: Why does TD list a wash sale adjustment?

Post by backslash2718 » Wed Oct 24, 2018 2:38 pm

I believe the wash sale rule applies for 30 days around both side of the transaction. I guess it's to prevent you from buying new assets right before you sell the substantially identical one for a loss. In any event, had you not sold that lot of shares, the way I understand it you still would have had a wash sale, just on the other lots.

livesoft
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Re: Why does TD list a wash sale adjustment?

Post by livesoft » Wed Oct 24, 2018 2:43 pm

I think you did not successfully specify the exact lots to sell at TDAmeritrade. But no matter, sell them today since they surely have a loss and you are happy that you sold other shares before they went down today.

Do you know how to exactly specify the lots that you are selling/sold at TDAmeritrade?
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FoolMeOnce
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Re: Why does TD list a wash sale adjustment?

Post by FoolMeOnce » Wed Oct 24, 2018 2:50 pm

livesoft wrote:
Wed Oct 24, 2018 2:43 pm
I think you did not successfully specify the exact lots to sell at TDAmeritrade. But no matter, sell them today since they surely have a loss and you are happy that you sold other shares before they went down today.

Do you know how to exactly specify the lots that you are selling/sold at TDAmeritrade?
I sold 414 shares Last In, First Out, to cover my 400 share purchase of 9/27 and my 13.894 share dividend reinvestment of 10/2. I then did a separate transaction, selling the Highest Cost, to harvest some bigger losses. [ETA: I did the Highest Cost sale first, then the LIFO transaction, if that matters] Gainskeeper shows all my current lots now as dating from 6/28/18 and earlier. Did I make a mistake?
Last edited by FoolMeOnce on Wed Oct 24, 2018 3:16 pm, edited 1 time in total.

livesoft
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Re: Why does TD list a wash sale adjustment?

Post by livesoft » Wed Oct 24, 2018 3:01 pm

Probably you did not make a mistake, so call them up and ask them about it. Or send a message. They do respond.
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iceport
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Re: Why does TD list a wash sale adjustment?

Post by iceport » Wed Oct 24, 2018 3:05 pm

Was there a single sale involved in which all shares purchased within the wash sale period were sold simultaneously for exactly the same price? And did that transaction execute first, before the older shares were sold?

If so, my understanding (or interpretation, really) of the wash sale rule is that there is no logical basis for classifying the sale of any of the shares as a wash sale.

However, with that said, since 2012 every broker was forced to make their own interpretations of the wash sale rule and establish their own algorithms to comply with reporting requirements. It's possible that your broker, either out of programming convenience or an overabundance of caution, elected to treat your circumstance as a wash sale.

There are no financial consequences, either way this particular case is treated. With the cost basis adjustment for the wash shares, their sale(s) will result in the same net capital loss for tax purposes. It's just that instead of not reporting any wash sale (which you could have done on your own prior to 2012), now you should probably report a wash sale on your tax return, and report the cost basis adjustment your broker provided. This will prevent a discrepancy between what you and your broker each report to the IRS.

But either way, your net capital loss will be the same, correct?
"Discipline matters more than allocation.” ─William Bernstein

FoolMeOnce
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Re: Why does TD list a wash sale adjustment?

Post by FoolMeOnce » Wed Oct 24, 2018 3:12 pm

iceport wrote:
Wed Oct 24, 2018 3:05 pm
Was there a single sale involved in which all shares purchased within the wash sale period were sold simultaneously for exactly the same price? And did that transaction execute first, before the older shares were sold?

If so, my understanding (or interpretation, really) of the wash sale rule is that there is no logical basis for classifying the sale of any of the shares as a wash sale.

However, with that said, since 2012 every broker was forced to make their own interpretations of the wash sale rule and establish their own algorithms to comply with reporting requirements. It's possible that your broker, either out of programming convenience or an overabundance of caution, elected to treat your circumstance as a wash sale.

There are no financial consequences, either way this particular case is treated. With the cost basis adjustment for the wash shares, their sale(s) will result in the same net capital loss for tax purposes. It's just that instead of not reporting any wash sale (which you could have done on your own prior to 2012), now you should probably report a wash sale on your tax return, and report the cost basis adjustment your broker provided. This will prevent a discrepancy between what you and your broker each report to the IRS.

But either way, your net capital loss will be the same, correct?
I sold the older lots about a minute before my LIFO order selling the recent 9/28 and 10/2 lots. Perhaps that affects TD's record keeping, but does that affect the ultimate decision of whether this was a wash sale? From livesoft's suggestion to clean it up by selling those lots today, if applicable, I would think not.

I don't understand when you say this will have no financial consequences. In TD's showing of my realized gains and losses, it shows a wash sale adjustment of a bit over $2,900, reducing my realized losses by that much.

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iceport
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Re: Why does TD list a wash sale adjustment?

Post by iceport » Wed Oct 24, 2018 3:23 pm

FoolMeOnce wrote:
Wed Oct 24, 2018 3:12 pm
iceport wrote:
Wed Oct 24, 2018 3:05 pm
Was there a single sale involved in which all shares purchased within the wash sale period were sold simultaneously for exactly the same price? And did that transaction execute first, before the older shares were sold?

If so, my understanding (or interpretation, really) of the wash sale rule is that there is no logical basis for classifying the sale of any of the shares as a wash sale.

However, with that said, since 2012 every broker was forced to make their own interpretations of the wash sale rule and establish their own algorithms to comply with reporting requirements. It's possible that your broker, either out of programming convenience or an overabundance of caution, elected to treat your circumstance as a wash sale.

There are no financial consequences, either way this particular case is treated. With the cost basis adjustment for the wash shares, their sale(s) will result in the same net capital loss for tax purposes. It's just that instead of not reporting any wash sale (which you could have done on your own prior to 2012), now you should probably report a wash sale on your tax return, and report the cost basis adjustment your broker provided. This will prevent a discrepancy between what you and your broker each report to the IRS.

But either way, your net capital loss will be the same, correct?
I sold the older lots about a minute before my LIFO order selling the recent 9/28 and 10/2 lots. Perhaps that affects TD's record keeping, but does that affect the ultimate decision of whether this was a wash sale? From Livesoft's suggestion to clean it up by selling those lots today, if applicable, I would think not.

I don't understand when you say this will have no financial consequences. In TD's showing of my realized gains and losses, it shows a wash sale adjustment of a bit over $2,900, reducing my realized losses by that much.
Well, if the older lots were sold first, technically speaking you still owned shares purchased within the wash sale period at the time of the first transaction. That makes it far more likely that the broker would classify the sale as a wash sale, I think.

However, the loss that was disallowed was then added to the cost basis of the shares matched to the wash sale. Then when those shares were sold (the ones with the adjusted cost basis), the total loss included whatever loss there would have been using the original cost basis, plus the additional loss due to the cost basis increase.

If you compute the loss both ways — once assuming there was no wash sale, and once assuming there was but accounting for the adjusted cost basis — your total loss should be the same.
"Discipline matters more than allocation.” ─William Bernstein

FoolMeOnce
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Re: Why does TD list a wash sale adjustment?

Post by FoolMeOnce » Wed Oct 24, 2018 3:31 pm

iceport wrote:
Wed Oct 24, 2018 3:23 pm
FoolMeOnce wrote:
Wed Oct 24, 2018 3:12 pm
iceport wrote:
Wed Oct 24, 2018 3:05 pm
Was there a single sale involved in which all shares purchased within the wash sale period were sold simultaneously for exactly the same price? And did that transaction execute first, before the older shares were sold?

If so, my understanding (or interpretation, really) of the wash sale rule is that there is no logical basis for classifying the sale of any of the shares as a wash sale.

However, with that said, since 2012 every broker was forced to make their own interpretations of the wash sale rule and establish their own algorithms to comply with reporting requirements. It's possible that your broker, either out of programming convenience or an overabundance of caution, elected to treat your circumstance as a wash sale.

There are no financial consequences, either way this particular case is treated. With the cost basis adjustment for the wash shares, their sale(s) will result in the same net capital loss for tax purposes. It's just that instead of not reporting any wash sale (which you could have done on your own prior to 2012), now you should probably report a wash sale on your tax return, and report the cost basis adjustment your broker provided. This will prevent a discrepancy between what you and your broker each report to the IRS.

But either way, your net capital loss will be the same, correct?
I sold the older lots about a minute before my LIFO order selling the recent 9/28 and 10/2 lots. Perhaps that affects TD's record keeping, but does that affect the ultimate decision of whether this was a wash sale? From Livesoft's suggestion to clean it up by selling those lots today, if applicable, I would think not.

I don't understand when you say this will have no financial consequences. In TD's showing of my realized gains and losses, it shows a wash sale adjustment of a bit over $2,900, reducing my realized losses by that much.
Well, if the older lots were sold first, technically speaking you still owned shares purchased within the wash sale period at the time of the first transaction. That makes it far more likely that the broker would classify the sale as a wash sale, I think.

However, the loss that was disallowed was then added to the cost basis of the shares matched to the wash sale. Then when those shares were sold (the ones with the adjusted cost basis), the total loss included whatever loss there would have been using the original cost basis, plus the additional loss due to the cost basis increase.

If you compute the loss both ways — once assuming there was no wash sale, and once assuming there was but accounting for the adjusted cost basis — your total loss should be the same.
Yes! Thank you! That is what they have calculated.

The adjusted cost of the 9/27 shares comes out to $59.73, compared to my purchase price of $52.65. Similar adjustment for the 10/2 shares, $58.9 compared to my purchase price of $52.82. It doesn't list the adjusted cost per share, just the adjusted cost of the entire sold lot, so it did not stand out to me and I had not done the math.

So, now I just need to make sure this is reported as a wash sale on my 2018 tax return? Is it worth trying to get TD to reclassify and re-adjust these sales, if they would even do that, to avoid having to report a wash sale?

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iceport
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Re: Why does TD list a wash sale adjustment?

Post by iceport » Wed Oct 24, 2018 3:36 pm

FoolMeOnce wrote:
Wed Oct 24, 2018 3:31 pm
Yes! Thank you! That is what they have calculated.

The adjusted cost of the 9/27 shares comes out to $59.73, compared to my purchase price of $52.65. Similar adjustment for the 10/2 shares, $58.9 compared to my purchase price of $52.82. It doesn't list the adjusted cost per share, just the adjusted cost of the entire sold lot, so it did not stand out to me and I had not done the math.

So, now I just need to make sure this is reported as a wash sale on my 2018 tax return? Is it worth trying to get TD to reclassify and re-adjust these sales, if they would even do that, to avoid having to report a wash sale?
That's great to hear.

As far as reporting, it would probably be simplest just to match the broker's reporting. It should be a very minor inconvenience on your tax forms to report the wash sale and cost basis adjustments, and it would be the most straightforward way for all involved to move forward with the least hassle and potential for complications.

As livesoft always says, wash sales are not illegal!
"Discipline matters more than allocation.” ─William Bernstein

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Dale_G
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Re: Why does TD list a wash sale adjustment?

Post by Dale_G » Wed Oct 24, 2018 4:59 pm

There is no need to do "report" any "wash" info to the IRS. The 1099 issued by the broker will show the correct loss for the sum of the two sales.

Dale
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