Wash sale with TLH

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CAMD
Posts: 21
Joined: Fri Apr 07, 2017 12:56 pm

Wash sale with TLH

Post by CAMD » Thu Oct 25, 2018 10:21 am

I realized that I accidentally created a wash sale and want some input regarding what to do (if anything).

Yesterday I sold several lots of Total Stock index (VTSAX) for a loss. Unbeknownst to me, my wife purchased VTSAX several weeks ago in her taxable account.

My questions are:

1) I am assuming that if I had sold her VTSAX yesterday, there would be no wash sale. Is there any value in selling her lot today? The market is up so far today, but likely her lot will still have a loss by the end of the day.

2) What happens if I do nothing? Does Vanguard report to the IRS that this is a wash sale or do I just self report?

Anything I should think about that I may be missing?

Thanks!

magicrat
Posts: 513
Joined: Sat Nov 29, 2014 7:04 pm

Re: Wash sale with TLH

Post by magicrat » Thu Oct 25, 2018 11:03 am

CAMD wrote:
Thu Oct 25, 2018 10:21 am
I realized that I accidentally created a wash sale and want some input regarding what to do (if anything).

Yesterday I sold several lots of Total Stock index (VTSAX) for a loss. Unbeknownst to me, my wife purchased VTSAX several weeks ago in her taxable account.

My questions are:

1) I am assuming that if I had sold her VTSAX yesterday, there would be no wash sale. Is there any value in selling her lot today? The market is up so far today, but likely her lot will still have a loss by the end of the day.

2) What happens if I do nothing? Does Vanguard report to the IRS that this is a wash sale or do I just self report?

Anything I should think about that I may be missing?

Thanks!
When a wash sale occurs, the disallowed loss is added to the cost basis of the replacement shares. This effectively defers the loss until those replacement shares are sold.

Vanguard automatically disallows the loss and adds it to the cost basis of the replacement share within an account. I am not sure if they do for related but separate accounts. You can look at the realized gain/loss tab and see if the adjustment was made. If not, you need to make the cost basis adjustments when you file your taxes.

You are correct, if you sold (or sell) all of the replacement shares (and don't create any new ones) there is effectively no wash sale.

CAMD
Posts: 21
Joined: Fri Apr 07, 2017 12:56 pm

Re: Wash sale with TLH

Post by CAMD » Thu Oct 25, 2018 12:29 pm

Thanks. I don’t see any adjustment to the realized cost basis on the shares I sold, so I assume that Vanguard doesn’t link the separate accounts.

Is there any value in selling my wife’s shares today? Or simply just adjust when I file taxes for 2018? Is there a reason to hold onto her shares or is it “cleaner” to just sell and resolve wash sale now?

livesoft
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Re: Wash sale with TLH

Post by livesoft » Thu Oct 25, 2018 12:48 pm

Vanguard and other brokers don't do anything about reporting wash sales because of transactions in other accounts.

Your spouse needs to adjust the cost basis of the shares that she purchased all by herself. She should TLH the shares today since they have to have a loss. That way, the wash sale adjustment will allow the losses (hers and yours) to be taken on your tax return.

I suggest you get this done soon, so that you don't have to keep funky records past the end of 2018.
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metrunt
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Joined: Thu Jul 16, 2015 9:36 am

Re: Wash sale with TLH

Post by metrunt » Thu Oct 25, 2018 12:58 pm

How much of the sale is disallowed?

Say I sell $100K with a $5K loss. Then 10 days later, buy $50K. Do I get a $2,5K loss and a $2,5K adjustment to my new purchase? Or a $5K adjustment?

Thanks!

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dratkinson
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Location: Centennial CO

Re: Wash sale with TLH

Post by dratkinson » Thu Oct 25, 2018 1:06 pm

If Vanguard knows.

If Vanguard knows about both taxable accounts, they'll take care of adjusting the cost basis of wife's purchase.

It's your choice whether/when you sell wife's shares---now or later---as Vanguard does the remembering for you.



If Vanguards doesn't know.

If Vanguard does not know about wife's account, then you'll need to manually adjust cost basis of wife's purchase. (I'd hate to have this hanging over my head.)

But since, wife's original purchase probably now also has a loss---market drop since her purchase---I'd be tempted to sell it now. Why? Get rid of the memory item this year.

Assuming you sold her shares. On your (MFJ) Sch D, the netted sales would result in the same TLH whether you: (1) disallow your TLH and increase her cost basis on her sale to report a larger TLH, or (2) report your smaller TLH, and don't increase her cost basis and report her smaller TLH. Either way you handle the problem this year and don't need to remember to track this going forward. But! IRS wants to see (1).



Going forward.
--Coordinate with wife all purchase/sales.
--Maybe consider owning unique funds in your taxable accounts to avoid this problem going forward. Example: She owns VTSMX and VGTSX in taxable, you own VTSMX equivalent (VFINX/80% and VEXMX/20%) and VGTSX equivalent (VFWIX).

It's also a good idea to review your investments in tax-advantaged accounts to avoid same replacement shares/wash sale problem.
--Many solve this problem by using all-in-one funds in TA accounts. Both can use same all-in-one funds.

So your investments change to look like:
--Her 401k and IRA: all-in-one fund
--His 401k and IRA: same all-in-one fund
--Her taxable: VTSMX, VGTSX, VBFMX
--His taxable: VFINX, VEXMX, VFWIX, VBIIX

You should still coordinate your buy/sell actions. Why? It's your family retirement nest egg, so both should know what's going on.




Question for the forum. Curious. I'd like to know the mechanics as I've never seen it done.
--I can imagine what the form 8949 entry looks like when the wife's cost basis is increased.
--But what does the form 8949 entry look like when the husband's TLH is disallowed?

Never mind. I figured it out. I think. Is this correct?
--He adjusts form 8949 in columns (f, code W) and (g, offsetting entry) to disallow/zero TLH.
--Vanguard knows: wife's cost basis increased so no form 8949 adjustment needed for columns (f) and (g).
--Vanguard doesn't know: wife's form 8949 adjustment for columns (f, code B) and (g, increase cost basis).

See form 8949 instructions "Column (g)—Adjustments to Gain or (Loss)": https://www.irs.gov/instructions/i8949# ... 3115159504

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Nicolas
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Joined: Wed Aug 22, 2012 7:41 am

Re: Wash sale with TLH

Post by Nicolas » Thu Oct 25, 2018 2:43 pm

I wasn't aware that purchases of securities 30 days before your sale would trigger a wash. I just completed my first TLH and ran afoul of this rule. Luckily my wash sale is only 0.369 share so I'm okay. Thanks to Bogleheads I'll be mindful of this in the future.
Last edited by Nicolas on Fri Oct 26, 2018 6:32 am, edited 2 times in total.

nolesrule
Posts: 811
Joined: Thu Feb 26, 2015 10:59 am

Re: Wash sale with TLH

Post by nolesrule » Thu Oct 25, 2018 3:24 pm

CAMD wrote:
Thu Oct 25, 2018 10:21 am
I realized that I accidentally created a wash sale and want some input regarding what to do (if anything).

Yesterday I sold several lots of Total Stock index (VTSAX) for a loss. Unbeknownst to me, my wife purchased VTSAX several weeks ago in her taxable account.

My questions are:

1) I am assuming that if I had sold her VTSAX yesterday, there would be no wash sale. Is there any value in selling her lot today? The market is up so far today, but likely her lot will still have a loss by the end of the day.

2) What happens if I do nothing? Does Vanguard report to the IRS that this is a wash sale or do I just self report?

Anything I should think about that I may be missing?

Thanks!
Define "several weeks ago".

livesoft
Posts: 62872
Joined: Thu Mar 01, 2007 8:00 pm

Re: Wash sale with TLH

Post by livesoft » Thu Oct 25, 2018 3:28 pm

A partial wash sale is figured out from the number of affected shares and not from dollar amounts.

A long thread documented a number of wash sale issues with screen captures of tax forms and online accounts is here:
viewtopic.php?t=179414

The thread was created in real-time and wash sales were created on purpose so that it could be linked in threads like this one.
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MarkS
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Joined: Thu Oct 20, 2011 6:04 am

Re: Wash sale with TLH

Post by MarkS » Thu Oct 25, 2018 5:07 pm

You state that your spouse purchased shares in a taxable account, but you do not mention if your sale was in a taxable or non-taxable account. If the sale was in a non-taxable account, I believe that there is no wash sale as there is no loss to be claimed on your tax return.

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