Wash Sales

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Topic Author
jdjd2
Posts: 30
Joined: Thu Feb 14, 2013 10:47 am

Wash Sales

Post by jdjd2 »

I sold a number of specific shares in early 2016, all for a loss. However, due to dividends received in late 2015, a subset of them are a wash sale. I
know how to fill out the various tax forms, but have one question on the adjustment column when reporting this wash sale.

The loss for the various shares sold differs. Some were sold for a much greater loss than others in this one sale. Since I sold specific shares, can I choose what subset of the total shares I use to offset the wash sale shares? This would allow me to maximize the loss while still dealing with the wash sale.

I'd also appreciate it if you could point me to the IRS publication and page number that supports your reply. I've searched some IRS publications , but have not found anything dealing with this question.

My thanks in advance.
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House Blend
Posts: 4877
Joined: Fri May 04, 2007 1:02 pm

Re: Wash Sales

Post by House Blend »

jdjd2 wrote:I sold a number of specific shares in early 2016, all for a loss. However, due to dividends received in late 2015, a subset of them are a wash sale.
This only makes sense to me if you *reinvested* the dividends, and didn't sell the shares that you purchased with those dividends. If you didn't reinvest, you don't have a wash sale.
The loss for the various shares sold differs. Some were sold for a much greater loss than others in this one sale. Since I sold specific shares, can I choose what subset of the total shares I use to offset the wash sale shares?
No. At this point you don't get to choose anything. The IRS rule is that you match the oldest shares sold at a loss to the oldest replacement shares you bought. (Search for the examples in the discussion of wash sales in Publication 550.)

So the loss on the oldest share of Fund X that you harvested gets added to the cost basis of the oldest replacement share you bought, the loss on the 2nd oldest harvested share of Fund X gets added to the 2nd oldest replacement share, and so on.

Given that this all took place within one brokerage account, you should wait and see what the Form 1099-B looks like. Unless some of the harvested shares were non-covered, I would assume that all of the numbers and codes on that form are correct, and all that needs to happen is to copy the numbers and codes from the boxes on that form onto your Form(s) 8949.
Topic Author
jdjd2
Posts: 30
Joined: Thu Feb 14, 2013 10:47 am

Re: Wash Sales

Post by jdjd2 »

Thank you. This answered my question.

Yes, the dividends were reinvested, thus the wash sale.

And yes, I expect the 1099-B to have all the information I need. However, I needed this for a pro forma tax return I am doing now as part of some planning.

In a related follow-up question, I also had a wash sale situation in 2015. In that case, the total number of dividend shares reinvested was large than the number of shares effected by the wash sale. I knew that the reinvested dividend shares that offset the wash sale would (with the wash sale) automatically be reclassified as shares held for long term gains.

What was surprising was that total number of dividend shares in that lot were ALL reclassified as now being long term shares. That did not make sense to me. Did my mutual fund company do that correctly?
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House Blend
Posts: 4877
Joined: Fri May 04, 2007 1:02 pm

Re: Wash Sales

Post by House Blend »

jdjd2 wrote:In a related follow-up question, I also had a wash sale situation in 2015. In that case, the total number of dividend shares reinvested was large than the number of shares effected by the wash sale. I knew that the reinvested dividend shares that offset the wash sale would (with the wash sale) automatically be reclassified as shares held for long term gains.

What was surprising was that total number of dividend shares in that lot were ALL reclassified as now being long term shares. That did not make sense to me. Did my mutual fund company do that correctly?
Yes, that's a mistake. That is, if you

* buy 100 shares of Fund X on 1/15/15.
* buy 200 shares of Fund X on 6/15/16.
* sell the 100 shares of Fund X from 2015 at a loss on 6/17/16,

then 100 of your 6/15 shares acquire the loss, and now are considered to be shares purchased in the previous year. (In particular, they are now long term.) The other 100 should be unaffected.

Then more fun begins if you want to sell just the 100 shares with the new (higher) basis.

Seems to me the "correct" way for a broker to handle this is to split the tax lot into two, and I think there's also a chance that this is what happens under the hood. What you see in your account when you login is not always an accurate picture of what's in the broker's database.
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