sell-all and wash sale rule question

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miket29
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sell-all and wash sale rule question

Post by miket29 » Wed Mar 18, 2020 10:40 pm

I've looked at the wiki at https://www.bogleheads.org/wiki/Wash_sale and it doesn't specifically cover whether you'd have a wash sale if you sell all the shares, including ones purchased within 30 days prior to the sale of all shares. However the wiki does link to the Fairmark website for additional info where I find this:
1: Selling All
On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell all 200 shares for $8,000 (a loss of $2,000).

Most people wouldn’t even think about applying the wash sale rule here. You know instinctively it shouldn’t apply, even though there’s a purchase of identical stock less than 31 days before the sale. Your instincts are correct: the wash sale rule doesn’t apply because the stock you bought isn’t replacement stock for the stock you sold. That’s true because you sold the same stock you bought.

https://fairmark.com/investment-taxatio ... ent-stock/
The reason I want to check is I would be selling shares acquired at multiple times and the example from Fairmark is for a single purchase date. Maybe it doesn't make a difference but I figured I should check first. I have a fund now showing a healthy loss that I've held for a while. The account is set up for automatic reinvestment of dividends so while the main purchase was a while back I have shared purchases at the beginning of March too.

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iceport
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Re: sell-all and wash sale rule question

Post by iceport » Wed Mar 18, 2020 11:13 pm

No, you're fine. This is a clear-cut case, because there are no shares left at all, so still no replacement shares and thus no wash sale. The intent of the wash sale rule is to prevent you from claiming a loss while staying invested. That's not what you are doing.

Notice that all the more complicated examples that follow don't involve selling all shares. Some shares are kept, and so the question of whether they are replacement shares arises.

No question in your case. There are no replacement shares left.
"Discipline matters more than allocation.” ─William Bernstein

rkhusky
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Re: sell-all and wash sale rule question

Post by rkhusky » Thu Mar 19, 2020 7:51 am

As long as that is true for all your accounts.

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grabiner
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Re: sell-all and wash sale rule question

Post by grabiner » Thu Mar 19, 2020 9:16 pm

Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
Wiki David Grabiner

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Re: sell-all and wash sale rule question

Post by travellight » Thu Mar 19, 2020 10:04 pm

grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
So the recent purchase is an allowed TLH but the purchase last year is not allowed for TLH? Even if you have sold all shares everywhere?
364

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grabiner
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Re: sell-all and wash sale rule question

Post by grabiner » Thu Mar 19, 2020 10:20 pm

travellight wrote:
Thu Mar 19, 2020 10:04 pm
grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
So the recent purchase is an allowed TLH but the purchase last year is not allowed for TLH? Even if you have sold all shares everywhere?
A wash sale occurs if you sell for a capital loss and you have replacement shares purchased 30 days before or after the sale. In the example above, you create a wash sale when you sell the old shares first, because the new shares are replacement shares.

But a wash sale only delays the capital loss until the replacement shares are sold. In the example above, you sold the replacement shares one microsecond later, and your capital loss on those shares was the sum of the losses on the two lots.
Wiki David Grabiner

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iceport
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Re: sell-all and wash sale rule question

Post by iceport » Fri Mar 20, 2020 12:42 pm

grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions...
I absolutely love that term, "irrelevant wash sale." That about sums it up!

Mind if I steal it David?

Also, you raise the possibility of the nanosecond timing differential between the sale executions for the different tax lots creating wash sales. But I wonder, would some brokers still classify the TLH as a wash sale even if the replacement shares were sold a few days before the TLH? Do you have any experience with that?
"Discipline matters more than allocation.” ─William Bernstein

rkhusky
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Re: sell-all and wash sale rule question

Post by rkhusky » Sat Mar 21, 2020 9:07 am

iceport wrote:
Fri Mar 20, 2020 12:42 pm
Also, you raise the possibility of the nanosecond timing differential between the sale executions for the different tax lots creating wash sales. But I wonder, would some brokers still classify the TLH as a wash sale even if the replacement shares were sold a few days before the TLH? Do you have any experience with that?
I doubt that would happen. These things are all handled by computer. I don't see anyone programming their computers that would cause something like that to happen. I am sure that when the computer sells an investment lot for a loss in a taxable account, it then looks for purchases of that exact investment in that exact account in the last 30 days, not counting the lot that it is currently handling. If it finds one, it runs the wash sale subroutine.

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iceport
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Re: sell-all and wash sale rule question

Post by iceport » Sat Mar 21, 2020 10:57 am

Seems just as plausible to me that their algorithms would be written to flag any replacement shares, whether they've been sold already or not. No logic involved, just blindly following the "letter of the law." They could use that ultra-conservative test knowing it would harm no one: any "wash sale" created that way would be an "irrelevant wash sale."

(absolutely love that term...)
"Discipline matters more than allocation.” ─William Bernstein

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Re: sell-all and wash sale rule question

Post by grabiner » Sat Mar 21, 2020 12:11 pm

iceport wrote:
Sat Mar 21, 2020 10:57 am
Seems just as plausible to me that their algorithms would be written to flag any replacement shares, whether they've been sold already or not. No logic involved, just blindly following the "letter of the law." They could use that ultra-conservative test knowing it would harm no one: any "wash sale" created that way would be an "irrelevant wash sale."

(absolutely love that term...)
If previous transactions in which shares were already sold were treated as washes, the resulting wash sales might not be irrelevant.

February 15: buy 100 shares for $30.
December 22: buy 100 shares for $30.
December 29: sell the December 22 shares for $30.
January 6 of next year: sell the February 15 shares for $25.

If the January 6 sale treated the December 22 shares as replacement shares for wash sale purposes, the capital loss of $500 on January 6 would be realized on December 29 of the previous year.
Wiki David Grabiner

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Re: sell-all and wash sale rule question

Post by HappyJack » Sat Mar 21, 2020 8:54 pm

Bought shares of Viiix in 401k - $1322.
Less than 30 days later sold VOO in taxable at $8k loss. If I just sit now for the next 30 days with no more purchases in my 401(k) will I be able to claim the 8K tax loss minus the 1322 shares that I had purchased before the sale. Or is the entire event a wash sale.

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Re: sell-all and wash sale rule question

Post by MotoTrojan » Sat Mar 21, 2020 9:06 pm

HappyJack wrote:
Sat Mar 21, 2020 8:54 pm
Bought shares of Viiix in 401k - $1322.
Less than 30 days later sold VOO in taxable at $8k loss. If I just sit now for the next 30 days with no more purchases in my 401(k) will I be able to claim the 8K tax loss minus the 1322 shares that I had purchased before the sale. Or is the entire event a wash sale.
Many, myself included, do not believe a 401k transaction can generate a wash, only taxable or IRA accounts. I would ignore the 401k.

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Re: sell-all and wash sale rule question

Post by HappyJack » Sat Mar 21, 2020 9:23 pm

Thanks. But if The transaction would have been in the taxable account Would it negate the entire wash sale or would I be able to just subtract those shares from the amount from the overall tax loss in the taxable account.

eukonomos
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Re: sell-all and wash sale rule question

Post by eukonomos » Sun Mar 22, 2020 7:48 am

rkhusky wrote:
Thu Mar 19, 2020 7:51 am
As long as that is true for all your accounts.
Would like to clarify about all accounts.

I owned ITOT total stock ETF in:
Broker A traditional IRA - all purchased in 2019 or sooner
Broker A taxable account - all purchased in 2019 or sooner
Broker B taxable account - only here were some shares purchased in the prior 30 days

I sold all shares in both taxable accounts and replaced with VTI.
I have not sold the shares in the IRA. I don't see those as replacement shares that would trigger a wash sale. Is that correct?

Some of the losses are short term, some long term, but that is dealt with separately.

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Re: sell-all and wash sale rule question

Post by LookinAround » Sun Mar 22, 2020 8:14 am

MotoTrojan wrote:
Sat Mar 21, 2020 9:06 pm
Many, myself included, do not believe a 401k transaction can generate a wash, only taxable or IRA accounts. I would ignore the 401k.
NOT true. Sales in tax advantaged accounts can trigger wash sales

See IRS Rev. Rule 2008-5

Loss from wash sales of stock or securities. This ruling provides that if an individual sells stock or securities for a loss and causes his or her IRA or Roth IRA to purchase substantially identical stock or securities within a specified period, the loss on the sale of the stock or securities is disallowed under section 1091 of the Code, and the individual’s basis in the IRA or Roth IRA is not increased by virtue of section 1091(d).


/* EDIT */
I see you're using a 401K. If you google the topic, the literature warns against 401K too.
https://money.usnews.com/investing/inve ... -investors
Also forbidden is selling a loser in a taxable account and then buying it in a tax-favored account like an IRA or 401(k). The rule still applies, though it is not a factor if purchase and sale are both in tax-favored accounts, since there's no tax saving from selling the loser, anyway.
Last edited by LookinAround on Sun Mar 22, 2020 8:24 am, edited 1 time in total.

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Wiggums
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Re: sell-all and wash sale rule question

Post by Wiggums » Sun Mar 22, 2020 8:19 am

grabiner wrote:
Sat Mar 21, 2020 12:11 pm
If previous transactions in which shares were already sold were treated as washes, the resulting wash sales might not be irrelevant.

February 15: buy 100 shares for $30.
December 22: buy 100 shares for $30.
December 29: sell the December 22 shares for $30.
January 6 of next year: sell the February 15 shares for $25.

If the January 6 sale treated the December 22 shares as replacement shares for wash sale purposes, the capital loss of $500 on January 6 would be realized on December 29 of the previous year.
Thank was helpful. Thank you!

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Re: sell-all and wash sale rule question

Post by student » Sun Mar 22, 2020 8:20 am

LookinAround wrote:
Sun Mar 22, 2020 8:14 am
MotoTrojan wrote:
Sat Mar 21, 2020 9:06 pm
Many, myself included, do not believe a 401k transaction can generate a wash, only taxable or IRA accounts. I would ignore the 401k.
NOT true. Sales in tax advantaged accounts can trigger wash sales

See IRS Rev. Rule 2008-5 Rev.

Loss from wash sales of stock or securities. This ruling provides that if an individual sells stock or securities for a loss and causes his or her IRA or Roth IRA to purchase substantially identical stock or securities within a specified period, the loss on the sale of the stock or securities is disallowed under section 1091 of the Code, and the individual’s basis in the IRA or Roth IRA is not increased by virtue of section 1091(d).
To be on the safe side, I would also include 401k. However, many would say that the paragraph that you quoted specifically mentioned IRA and Roth IRA, it did not use language "tax advantaged accounts such as IRA or Roth IRA," so many will argue that the ruling is narrow in scope. I think the correct answer is nobody knows just like the term "substantially identical."

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Re: sell-all and wash sale rule question

Post by rkhusky » Sun Mar 22, 2020 8:28 am

iceport wrote:
Sat Mar 21, 2020 10:57 am
Seems just as plausible to me that their algorithms would be written to flag any replacement shares, whether they've been sold already or not. No logic involved, just blindly following the "letter of the law." They could use that ultra-conservative test knowing it would harm no one: any "wash sale" created that way would be an "irrelevant wash sale."

(absolutely love that term...)
The letter of the law also says that the basis of the replacement shares needs to be adjusted. If there are no replacement shares, your program will halt.

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Re: sell-all and wash sale rule question

Post by MotoTrojan » Sun Mar 22, 2020 8:28 am

LookinAround wrote:
Sun Mar 22, 2020 8:14 am
MotoTrojan wrote:
Sat Mar 21, 2020 9:06 pm
Many, myself included, do not believe a 401k transaction can generate a wash, only taxable or IRA accounts. I would ignore the 401k.
NOT true. Sales in tax advantaged accounts can trigger wash sales

See IRS Rev. Rule 2008-5

Loss from wash sales of stock or securities. This ruling provides that if an individual sells stock or securities for a loss and causes his or her IRA or Roth IRA to purchase substantially identical stock or securities within a specified period, the loss on the sale of the stock or securities is disallowed under section 1091 of the Code, and the individual’s basis in the IRA or Roth IRA is not increased by virtue of section 1091(d).


/* EDIT */
I see you're using a 401K. If you google the topic, the literature warns against 401K too.
https://money.usnews.com/investing/inve ... -investors
Also forbidden is selling a loser in a taxable account and then buying it in a tax-favored account like an IRA or 401(k). The rule still applies, though it is not a factor if purchase and sale are both in tax-favored accounts, since there's no tax saving from selling the loser, anyway.
Note I said that many believe, not all. There are countless threads on the topic. I'll let you decide for yourself but I will not be considering 401k in my TLH decisions personally.

viewtopic.php?t=172622

viewtopic.php?f=1&t=172514&newpost=2602912

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Re: sell-all and wash sale rule question

Post by LookinAround » Sun Mar 22, 2020 8:28 am

student wrote:
Sun Mar 22, 2020 8:20 am
To be on the safe side, I would also include 401k. However, many would say that the paragraph that you quoted specifically mentioned IRA and Roth IRA, it did not use language "tax advantaged accounts such as IRA or Roth IRA," so many will argue that the ruling is narrow in scope. I think the correct answer is nobody knows just like the term "substantially identical."
+1

Yes. I just finished editing my post when hit Submit then saw yours.

While the ruling didn't specifically say 401K I'd like to hear the argument why someone thinks sales in a 401K wouldn''t make a difference when sales in traditional or Roth IRA do.

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Re: sell-all and wash sale rule question

Post by rkhusky » Sun Mar 22, 2020 8:31 am

student wrote:
Sun Mar 22, 2020 8:20 am
LookinAround wrote:
Sun Mar 22, 2020 8:14 am
MotoTrojan wrote:
Sat Mar 21, 2020 9:06 pm
Many, myself included, do not believe a 401k transaction can generate a wash, only taxable or IRA accounts. I would ignore the 401k.
NOT true. Sales in tax advantaged accounts can trigger wash sales

See IRS Rev. Rule 2008-5 Rev.

Loss from wash sales of stock or securities. This ruling provides that if an individual sells stock or securities for a loss and causes his or her IRA or Roth IRA to purchase substantially identical stock or securities within a specified period, the loss on the sale of the stock or securities is disallowed under section 1091 of the Code, and the individual’s basis in the IRA or Roth IRA is not increased by virtue of section 1091(d).
To be on the safe side, I would also include 401k. However, many would say that the paragraph that you quoted specifically mentioned IRA and Roth IRA, it did not use language "tax advantaged accounts such as IRA or Roth IRA," so many will argue that the ruling is narrow in scope. I think the correct answer is nobody knows just like the term "substantially identical."
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled. So, you are left with the wash sale statute, which does not mention any type of account, just that there is a wash sale if the taxpayer acquires substantially identical replacement shares within the wash sale time window. There is no tax court or IRS ruling that exempts 401k's. And the Supreme Court has ruled that the taxpayer must be able to point to a statute or ruling that specifically allows a deduction before you can take it. There is no such statute or ruling that exempts 401k's from the wash sale statute. And the same is true for HSA's. Just because the IRS has not specifically included 401k's or HSA's in their instruction booklets does not mean that they are exempt from the wash sale rule.

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Re: sell-all and wash sale rule question

Post by rkhusky » Sun Mar 22, 2020 8:40 am

eukonomos wrote:
Sun Mar 22, 2020 7:48 am
rkhusky wrote:
Thu Mar 19, 2020 7:51 am
As long as that is true for all your accounts.
Would like to clarify about all accounts.

I owned ITOT total stock ETF in:
Broker A traditional IRA - all purchased in 2019 or sooner
Broker A taxable account - all purchased in 2019 or sooner
Broker B taxable account - only here were some shares purchased in the prior 30 days

I sold all shares in both taxable accounts and replaced with VTI.
I have not sold the shares in the IRA. I don't see those as replacement shares that would trigger a wash sale. Is that correct?

Some of the losses are short term, some long term, but that is dealt with separately.
As long as there were no reinvested dividends in the IRA, or will be in the next 30 days, you are fine. Many mutual funds distribute dividends at the end of March. Some Vanguard funds have already distributed dividends. If you have dividend reinvesting turned off, you should be fine.

Note that I assume you have determined that ITOT and VTI are not substantially identical.

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Re: sell-all and wash sale rule question

Post by LookinAround » Sun Mar 22, 2020 8:43 am

rkhusky wrote:
Sun Mar 22, 2020 8:31 am
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled.
Please quote where "the ruling also says to not read anything further into the ruling"

/* EDIT */
OK. Yes, I found the reference. Why do think a 401K wouldn't apply if the IRS needed to further clarify? And you really encouraging someone to be the test case? (But I'm more interested in why you think a 401K doesn't meet same criteria as an IRA to exclude it?)

This ruling does not address any issues other than those specifically addressed herein. In
particular, this ruling does not address (and no inference should be drawn with respect
to) any issue arising under § 4975.

rkhusky
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Re: sell-all and wash sale rule question

Post by rkhusky » Sun Mar 22, 2020 10:14 am

LookinAround wrote:
Sun Mar 22, 2020 8:43 am
rkhusky wrote:
Sun Mar 22, 2020 8:31 am
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled.
Please quote where "the ruling also says to not read anything further into the ruling"

/* EDIT */
OK. Yes, I found the reference. Why do think a 401K wouldn't apply if the IRS needed to further clarify? And you really encouraging someone to be the test case? (But I'm more interested in why you think a 401K doesn't meet same criteria as an IRA to exclude it?)

This ruling does not address any issues other than those specifically addressed herein. In
particular, this ruling does not address (and no inference should be drawn with respect
to) any issue arising under § 4975.
The wash sale statute includes all accounts under your control, including 401k's, 403b's, HSA's, IRA's, trusts, corporate accounts, spouse's accounts.

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Re: sell-all and wash sale rule question

Post by LookinAround » Sun Mar 22, 2020 10:32 am

rkhusky wrote:
Sun Mar 22, 2020 10:14 am
LookinAround wrote:
Sun Mar 22, 2020 8:43 am
rkhusky wrote:
Sun Mar 22, 2020 8:31 am
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled.
Please quote where "the ruling also says to not read anything further into the ruling"

/* EDIT */
OK. Yes, I found the reference. Why do think a 401K wouldn't apply if the IRS needed to further clarify? And you really encouraging someone to be the test case? (But I'm more interested in why you think a 401K doesn't meet same criteria as an IRA to exclude it?)

This ruling does not address any issues other than those specifically addressed herein. In
particular, this ruling does not address (and no inference should be drawn with respect
to) any issue arising under § 4975.
The wash sale statute includes all accounts under your control, including 401k's, 403b's, HSA's, IRA's, trusts, corporate accounts, spouse's accounts.
Sorry. I misread your earlier post. We're in violent agreement. :sharebeer

eukonomos
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Re: sell-all and wash sale rule question

Post by eukonomos » Sun Mar 22, 2020 11:02 am

rkhusky wrote:
Sun Mar 22, 2020 8:40 am
eukonomos wrote:
Sun Mar 22, 2020 7:48 am
rkhusky wrote:
Thu Mar 19, 2020 7:51 am
As long as that is true for all your accounts.
Would like to clarify about all accounts.

I owned ITOT total stock ETF in:
Broker A traditional IRA - all purchased in 2019 or sooner
Broker A taxable account - all purchased in 2019 or sooner
Broker B taxable account - only here were some shares purchased in the prior 30 days

I sold all shares in both taxable accounts and replaced with VTI.
I have not sold the shares in the IRA. I don't see those as replacement shares that would trigger a wash sale. Is that correct?

Some of the losses are short term, some long term, but that is dealt with separately.
As long as there were no reinvested dividends in the IRA, or will be in the next 30 days, you are fine. Many mutual funds distribute dividends at the end of March. Some Vanguard funds have already distributed dividends. If you have dividend reinvesting turned off, you should be fine.

Note that I assume you have determined that ITOT and VTI are not substantially identical.
Thank you. Dividends are paid in cash and not automatically reinvested. I reinvest occasionally; I'll make a point not to put into ITOT soon.

The wiki lists ITOT and VTI as good substitute funds. I confirmed the indices they track on the iShares and Vanguard sites.

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Re: sell-all and wash sale rule question

Post by nps » Sun Mar 22, 2020 11:19 am

rkhusky wrote:
Sun Mar 22, 2020 10:14 am
LookinAround wrote:
Sun Mar 22, 2020 8:43 am
rkhusky wrote:
Sun Mar 22, 2020 8:31 am
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled.
Please quote where "the ruling also says to not read anything further into the ruling"

/* EDIT */
OK. Yes, I found the reference. Why do think a 401K wouldn't apply if the IRS needed to further clarify? And you really encouraging someone to be the test case? (But I'm more interested in why you think a 401K doesn't meet same criteria as an IRA to exclude it?)

This ruling does not address any issues other than those specifically addressed herein. In
particular, this ruling does not address (and no inference should be drawn with respect
to) any issue arising under § 4975.
The wash sale statute includes all accounts under your control, including 401k's, 403b's, HSA's, IRA's, trusts, corporate accounts, spouse's accounts.
If it did, why would the IRS bother to make a separate specific ruling on IRAs but not the others?

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Re: sell-all and wash sale rule question

Post by rkhusky » Sun Mar 22, 2020 11:38 am

nps wrote:
Sun Mar 22, 2020 11:19 am
If it did, why would the IRS bother to make a separate specific ruling on IRAs but not the others?
I don't know. Perhaps the case that they were ruling on only involved an IRA.

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iceport
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Re: sell-all and wash sale rule question

Post by iceport » Sun Mar 22, 2020 11:42 am

grabiner wrote:
Sat Mar 21, 2020 12:11 pm
iceport wrote:
Sat Mar 21, 2020 10:57 am
Seems just as plausible to me that their algorithms would be written to flag any replacement shares, whether they've been sold already or not. No logic involved, just blindly following the "letter of the law." They could use that ultra-conservative test knowing it would harm no one: any "wash sale" created that way would be an "irrelevant wash sale."

(absolutely love that term...)
If previous transactions in which shares were already sold were treated as washes, the resulting wash sales might not be irrelevant.

February 15: buy 100 shares for $30.
December 22: buy 100 shares for $30.
December 29: sell the December 22 shares for $30.
January 6 of next year: sell the February 15 shares for $25.

If the January 6 sale treated the December 22 shares as replacement shares for wash sale purposes, the capital loss of $500 on January 6 would be realized on December 29 of the previous year.
Thanks, David. Good point.
"Discipline matters more than allocation.” ─William Bernstein

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Re: sell-all and wash sale rule question

Post by travellight » Tue Mar 24, 2020 12:29 am

grabiner wrote:
Thu Mar 19, 2020 10:20 pm
travellight wrote:
Thu Mar 19, 2020 10:04 pm
grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
So the recent purchase is an allowed TLH but the purchase last year is not allowed for TLH? Even if you have sold all shares everywhere?
A wash sale occurs if you sell for a capital loss and you have replacement shares purchased 30 days before or after the sale. In the example above, you create a wash sale when you sell the old shares first, because the new shares are replacement shares.

But a wash sale only delays the capital loss until the replacement shares are sold. In the example above, you sold the replacement shares one microsecond later, and your capital loss on those shares was the sum of the losses on the two lots.
What if you sell all your shares in one transaction? Both last year and last week's shares?
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Re: sell-all and wash sale rule question

Post by grabiner » Tue Mar 24, 2020 8:33 am

travellight wrote:
Tue Mar 24, 2020 12:29 am
grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
What if you sell all your shares in one transaction? Both last year and last week's shares?
That is my example above. If you try to sell all shares in one transaction, the brokerage might report it as two transactions because it views sales of two lots as two different transactions. This creates a wash sale, but an irrelevant one because the loss is deferred for a microsecond.

You could similarly have an irrelevant wash sale if your transaction is split into two actual transactions, which might happen because of the way the stock market works. Your market order to sell 200 shares might have 100 shares sold at $20.00 and 100 at $19.99, or your limit order to sell 200 shares at $20 might have someone offer to buy 100 when it is placed, and someone else offer to buy 100 a minute later.
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Re: sell-all and wash sale rule question

Post by travellight » Tue Mar 24, 2020 2:45 pm

grabiner wrote:
Tue Mar 24, 2020 8:33 am
travellight wrote:
Tue Mar 24, 2020 12:29 am
grabiner wrote:
Thu Mar 19, 2020 9:16 pm
Note that if you bought shares in the last 30 days, the brokerage may report an irrelevant wash sale, because it views the transaction as two transactions:

Last year, you bought 100 shares at $25.
Last week, you bought 100 shares at $30.
At 10:00:00.000000 today, you sell last year's shares for $20, and your $500 capital loss is a wash sale; the $500 is added to the basis of last week's shares.
At 10:00:00.000001 today, you sell last week's shares for $20, and you have a capital loss of $1500 on those shares.
What if you sell all your shares in one transaction? Both last year and last week's shares?
That is my example above. If you try to sell all shares in one transaction, the brokerage might report it as two transactions because it views sales of two lots as two different transactions. This creates a wash sale, but an irrelevant one because the loss is deferred for a microsecond.

You could similarly have an irrelevant wash sale if your transaction is split into two actual transactions, which might happen because of the way the stock market works. Your market order to sell 200 shares might have 100 shares sold at $20.00 and 100 at $19.99, or your limit order to sell 200 shares at $20 might have someone offer to buy 100 when it is placed, and someone else offer to buy 100 a minute later.
Great, I think I understand now. Thanks again!
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Re: sell-all and wash sale rule question

Post by travellight » Mon Mar 30, 2020 12:34 pm

Just a question for clarification of details:

I bought vbr on 3/5 in one bank's account and again around 3/10/20 in a different bank's account (all taxable accounts, not 401k/IRA). I sold all the vbr in the second account which had been purchased on 3/10/20. I have not bought any more vbr but forgot about the buy on 3/5/20 in the first account. I sold all of that today. Will I get the tax loss harvest for both sales without incurring the wash sale rule since I never bought any more replacement shares even though I had bought within the prior 30 days? Even if I didn't sell all in one day in all accounts? I am just not sure if the "sell all" has to be in all accounts on the same day. Thanks.
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Re: sell-all and wash sale rule question

Post by iceport » Mon Mar 30, 2020 1:41 pm

travellight wrote:
Mon Mar 30, 2020 12:34 pm
Just a question for clarification of details:

I bought vbr on 3/5 in one bank's account and again around 3/10/20 in a different bank's account (all taxable accounts, not 401k/IRA). I sold all the vbr in the second account which had been purchased on 3/10/20. I have not bought any more vbr but forgot about the buy on 3/5/20 in the first account. I sold all of that today. Will I get the tax loss harvest for both sales without incurring the wash sale rule since I never bought any more replacement shares even though I had bought within the prior 30 days? Even if I didn't sell all in one day in all accounts? I am just not sure if the "sell all" has to be in all accounts on the same day. Thanks.
Yes and no. Yes, you'll get the full tax-loss harvest, but no, you can't do it without incurring a wash sale. In order for the "sell all" concept to be valid, it has to be done in the same sell order, never mind on the same day and in the same account. Otherwise, there will be a wash sale somewhere.

So when you sold the lot bought on 3/10, the loss washed with the lot purchased on 3/5. The lot purchased on 3/5 must be treated as replacement shares, even though they were bought before the lot you sold at a loss. What must happen is that the shares sold at a loss are then matched, share for share, with the replacement shares until you either run out of shares sold, or you run out of replacement shares. Then the loss on each share sold matched in that way will be disallowed, and the loss will be added to the cost basis of each replacement share. Then upon the sale of the replacement shares, the full loss from the first sale will be realized and can be claimed, due to the adjustment in cost basis.

That's not really very complicated, once you work it through. What is perhaps more confusing is that neither broker (assuming there are two) will report any wash sale. They are required only to report wash sales on funds with identical CUSIPs and in the same account. However, the law requires that you report the wash sale.

So this is a good chance to learn:

1) brokers' rules are different that taxpayers' rules for reporting wash sales; and
2) investors should always keep their own cost basis records for taxable holdings, and not assume all the accounting they ever need will be performed by a broker

I recommend the first, fourth and fifth articles in this series at Fairmark.com: The Wash Sale Rule

EDIT to add: If neither broker reports a wash sale, and you don't either, your tax liability doesn't change. But your accounting will be wrong. Even though both the risk of being audited and the risk of any significant repercussions are quite low if you don't report the wash sale, I would report it, because that's what the law requires.
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Re: sell-all and wash sale rule question

Post by travellight » Mon Mar 30, 2020 2:18 pm

Thanks so much, iceport.^
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Re: sell-all and wash sale rule question

Post by nolesrule » Mon Mar 30, 2020 3:13 pm

rkhusky wrote:
Sun Mar 22, 2020 10:14 am
LookinAround wrote:
Sun Mar 22, 2020 8:43 am
rkhusky wrote:
Sun Mar 22, 2020 8:31 am
Yes, that ruling only applies to IRA's, and the ruling also says to not read anything further into the ruling, which would include how any other tax-advantaged account should be handled.
Please quote where "the ruling also says to not read anything further into the ruling"

/* EDIT */
OK. Yes, I found the reference. Why do think a 401K wouldn't apply if the IRS needed to further clarify? And you really encouraging someone to be the test case? (But I'm more interested in why you think a 401K doesn't meet same criteria as an IRA to exclude it?)

This ruling does not address any issues other than those specifically addressed herein. In
particular, this ruling does not address (and no inference should be drawn with respect
to) any issue arising under § 4975.
The wash sale statute includes all accounts under your control, including 401k's, 403b's, HSA's, IRA's, trusts, corporate accounts, spouse's accounts.
A 401k is a trust and I am not the trustee. I have no control over my workplace 401k. I do not get to determine when my salary deferrals turn into purchases and I do not get control over when exchanges execute. I can make suggestions, but that's the extent of it.

One could argue that a Solo 401k counts since you are the trustee and therefore have that level of control.

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Re: sell-all and wash sale rule question

Post by rkhusky » Mon Mar 30, 2020 3:52 pm

nolesrule wrote:
Mon Mar 30, 2020 3:13 pm
A 401k is a trust and I am not the trustee. I have no control over my workplace 401k. I do not get to determine when my salary deferrals turn into purchases and I do not get control over when exchanges execute. I can make suggestions, but that's the extent of it.

One could argue that a Solo 401k counts since you are the trustee and therefore have that level of control.
Trusts are included in the wash sale rule. A tax court ruling specifically involved a trust.

IRA's are tax-exempt trusts. An IRS ruling specifically included IRA's.

You don't get to choose in which funds to invest in your 401k?

Do you know of a tax court or IRS ruling exempting 401k's from the wash sale statute?

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Re: sell-all and wash sale rule question

Post by nolesrule » Mon Mar 30, 2020 4:44 pm

rkhusky wrote:
Mon Mar 30, 2020 3:52 pm
nolesrule wrote:
Mon Mar 30, 2020 3:13 pm
A 401k is a trust and I am not the trustee. I have no control over my workplace 401k. I do not get to determine when my salary deferrals turn into purchases and I do not get control over when exchanges execute. I can make suggestions, but that's the extent of it.

One could argue that a Solo 401k counts since you are the trustee and therefore have that level of control.
Trusts are included in the wash sale rule. A tax court ruling specifically involved a trust.

IRA's are tax-exempt trusts. An IRS ruling specifically included IRA's.

You don't get to choose in which funds to invest in your 401k?

Do you know of a tax court or IRS ruling exempting 401k's from the wash sale statute?
Very well, but there are ownership and legal differences between a 401k structured retirement plan and an IRA that make them not even close to equivalent in how they are controlled and who owns the underlying assets.

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Re: sell-all and wash sale rule question

Post by rkhusky » Mon Mar 30, 2020 5:01 pm

nolesrule wrote:
Mon Mar 30, 2020 4:44 pm
Very well, but there are ownership and legal differences between a 401k structured retirement plan and an IRA that make them not even close to equivalent in how they are controlled and who owns the underlying assets.
I agree. Perhaps the most troubling is that the employer can change the available choices at any time. Not that your IRA provider can't do the same, but you can more easily move to a different IRA provider.

However, until the IRS rules that 401k's and the like are exempt, the wash sale statute still holds.

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Re: sell-all and wash sale rule question

Post by nolesrule » Mon Mar 30, 2020 7:46 pm

rkhusky wrote:
Mon Mar 30, 2020 5:01 pm
nolesrule wrote:
Mon Mar 30, 2020 4:44 pm
Very well, but there are ownership and legal differences between a 401k structured retirement plan and an IRA that make them not even close to equivalent in how they are controlled and who owns the underlying assets.
I agree. Perhaps the most troubling is that the employer can change the available choices at any time. Not that your IRA provider can't do the same, but you can more easily move to a different IRA provider.

However, until the IRS rules that 401k's and the like are exempt, the wash sale statute still holds.
My point is that in my (non-tax lawyer) opinion, the difference in ownership structure of non-IRA based workplace plans is the reason the wash sale statute would not apply. You the tax payer don't actually own or control what is in your 401k. But by that same set of reasoning I also posited that a Solo 401k would be covered because you do have the necessary ownership and control.

Now if someone wants to err on the side of caution, that's fine with me.

And I accidentally did trigger a permanent loss due to a wash sale back on the 9th of March. I completely forgot I had made my Roth IRA purchase at the end of February. Normally it's in January, but I was in between jobs and waited until I had income. Not a huge mistake in the grand scheme of things. My rough calculation said it was about $400 in losses I can't take advantage of. Oh well.

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