Wash Sale Rule Confusion

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Topic Author
ryanshook
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Joined: Sun Apr 08, 2018 9:01 pm

Wash Sale Rule Confusion

Post by ryanshook » Thu Dec 27, 2018 8:08 pm

Hello! I am rebalancing my portfolio and trying to make sure I understand the wash rule. Can you please clear this up for me?

On Dec. 22 I own $100 worth of ABC
On Dec. 23 I sell $75 worth of ABC for a long-term profit using Spec ID.
On Dec 24 I sell the remaining $25 of ABC for a short-term loss using Spec ID.
On Dec. 26 I buy $100 worth of ABC.

Have I avoided wash sale rules or am I now subject to them?
Thanks for any help!

livesoft
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Re: Wash Sale Rule Confusion

Post by livesoft » Thu Dec 27, 2018 8:10 pm

You are subject to them.
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
ryanshook
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Re: Wash Sale Rule Confusion

Post by ryanshook » Thu Dec 27, 2018 9:09 pm

livesoft wrote:
Thu Dec 27, 2018 8:10 pm
You are subject to them.
If I sell the full $100 of my holdings all at once instead of two separate transactions would I avoid a wash sale?

stevew7
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Re: Wash Sale Rule Confusion

Post by stevew7 » Thu Dec 27, 2018 9:13 pm

No. You need to wait 30 days after your last sell of ABC in order to avoid a wash sale.

casualflower
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Re: Wash Sale Rule Confusion

Post by casualflower » Thu Dec 27, 2018 9:14 pm

What do you think the wash sale rules are?

You've got to wait 30 days after selling ABC before you can buy it again.

Topic Author
ryanshook
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Re: Wash Sale Rule Confusion

Post by ryanshook » Thu Dec 27, 2018 9:20 pm

stevew7 wrote:
Thu Dec 27, 2018 9:13 pm
No. You need to wait 30 days after your last sell of ABC in order to avoid a wash sale.
What I'm saying is that if I sold all $100 of my holdings at once I would realize a net gain on the sale even though some shares would be losses (these were reinvested dividends). But I would still run into wash sale rules because some of the shares were sold at a loss? So to clarify for myself, wash sale rules apply to any loss on any individual asset and not net gains or losses on a single sale.

Suntan1
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Re: Wash Sale Rule Confusion

Post by Suntan1 » Thu Dec 27, 2018 9:55 pm

ryanshook wrote:
Thu Dec 27, 2018 9:20 pm
stevew7 wrote:
Thu Dec 27, 2018 9:13 pm
No. You need to wait 30 days after your last sell of ABC in order to avoid a wash sale.
What I'm saying is that if I sold all $100 of my holdings at once I would realize a net gain on the sale even though some shares would be losses (these were reinvested dividends). But I would still run into wash sale rules because some of the shares were sold at a loss? So to clarify for myself, wash sale rules apply to any loss on any individual asset and not net gains or losses on a single sale.
Check link for more info.
https://www.investopedia.com/terms/w/washsalerule.asp

stevew7
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Re: Wash Sale Rule Confusion

Post by stevew7 » Thu Dec 27, 2018 9:58 pm

12.22.17 buy 75 shares of abc at 1.00
12.22.18 buy 25 shares of abc at 5.00
12.23.18 sell 75 shares of abc at 4.00 using spec share id
12.24.18 sell 25 shares of abc at 4.00 using spec share id
12.26.18 buy 100 shares

You would have a wash sale on your transaction on 12.24.18 so no loss permitted.

If you are asking if you had instead sold all 100 shares on 12.23.18 if you would still have a wash sale, yes, you would still have a wash sale due to you buying abc again on 12.26.18. https://www.irs.gov/publications/p550#e ... k100010611
Last edited by stevew7 on Fri Dec 28, 2018 3:41 pm, edited 1 time in total.

Topic Author
ryanshook
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Re: Wash Sale Rule Confusion

Post by ryanshook » Fri Dec 28, 2018 12:19 am

stevew7 wrote:
Thu Dec 27, 2018 9:58 pm
If you are asking if you instead sold all 100 shares on 12.23.18, so that you in total would have only a capital gain, then yes, no wash sale applies as you have a gain, not a loss and wash sales only apply to losses.
I don't think this is correct. At least, I'm pretty sure it's not correct if using Spec ID.
Last edited by ryanshook on Fri Dec 28, 2018 1:26 am, edited 1 time in total.

Topic Author
ryanshook
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Re: Wash Sale Rule Confusion

Post by ryanshook » Fri Dec 28, 2018 12:48 am

Also, is there any good guidance on what constitutes "substantially identical" when it comes to mutual funds and ETFs? So many funds are going to hold at least a few overlapping stocks and have a high correlation.

Currently considering selling VEIPX at a loss and buying BRK.B and VFIFX within 30 days. Thoughts?

zeugmite
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Re: Wash Sale Rule Confusion

Post by zeugmite » Fri Dec 28, 2018 1:20 am

ryanshook wrote:
Fri Dec 28, 2018 12:48 am
Also, is there any good guidance on what constitutes "substantially identical" when it comes to mutual funds and ETFs? So many funds are going to hold at least a few overlapping stocks and have a high correlation.

Currently considering selling VEIPX at a loss and buying BRK.B and VFIFX within 30 days. Thoughts?
Substantially identical is vague and people walk the line sometimes. I'll tell you a criterion that I believe though, and which I feel personally confident defending to the IRS: if there is a non-trivial returns risk in hedging a pair of assets against each other (e.g. long one, short the other) over a period of 30 days, the two are not substantially identical. What's a non-trivial returns risk? Maybe +/-0.1%.

zeugmite
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Re: Wash Sale Rule Confusion

Post by zeugmite » Fri Dec 28, 2018 1:35 am

ryanshook wrote:
Thu Dec 27, 2018 9:20 pm
stevew7 wrote:
Thu Dec 27, 2018 9:13 pm
No. You need to wait 30 days after your last sell of ABC in order to avoid a wash sale.
What I'm saying is that if I sold all $100 of my holdings at once I would realize a net gain on the sale even though some shares would be losses (these were reinvested dividends). But I would still run into wash sale rules because some of the shares were sold at a loss? So to clarify for myself, wash sale rules apply to any loss on any individual asset and not net gains or losses on a single sale.
Wash sale rules do apply to individual shares, but if you did not buy back on Dec. 24, there would not be a wash sale anyway. Purchases made before and in the same lot as the shares you are selling are not replacement shares according to the IRS, only shares purchased after. So say you purchased additional shares on Dec. 22, subsequent to your already stated purchase, then technically those shares would be replacement shares and disqualify the loss, but they would get a stepped up basis.

This is nothing to do with gains or losses overall in the sale.

FactualFran
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Re: Wash Sale Rule Confusion

Post by FactualFran » Fri Dec 28, 2018 3:02 pm

ryanshook wrote:
Thu Dec 27, 2018 9:20 pm
What I'm saying is that if I sold all $100 of my holdings at once I would realize a net gain on the sale even though some shares would be losses (these were reinvested dividends). But I would still run into wash sale rules because some of the shares were sold at a loss? So to clarify for myself, wash sale rules apply to any loss on any individual asset and not net gains or losses on a single sale.
It would be a wash sale according to the Loss and Gain on Same Day section of IRS Publication 550.
Loss and gain on same day. Loss from a wash sale of one block of stock or securities cannot be used to reduce any gains on identical blocks sold the same day.

Example.

During 2011, you bought 100 shares of X stock on each of three occasions. You paid $158 per share for the first block of 100 shares, $100 per share for the second block, and $95 per share for the third block. On December 28, 2016, you sold 300 shares of X stock for $125 per share. On January 11, 2017, you bought 250 shares of identical X stock. You cannot deduct the loss of $33 per share on the first block because within 30 days after the date of sale you bought 250 identical shares of X stock. In addition, you cannot reduce the gain realized on the sale of the second and third blocks of stock by this loss.

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Earl Lemongrab
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Re: Wash Sale Rule Confusion

Post by Earl Lemongrab » Fri Dec 28, 2018 4:28 pm

Is this just a hypothetical, or is there some goal you want to achieve? If there aren't any other transactions, ones that would produce short-term capital gains, then even if you did all that without a wash sale the loss would be reconciled against the gains at tax time.

As far as selling all at once, if you are discussing traditional mutual funds you could switch to average basis and there wouldn't be any shares with a loss. Again, it's not clear the problem you're trying to solve.

It's kind of like we would see on programming forums. People would think, "I need to do A. I think I do that with B. I can't get B to work right. I will go to forum and ask how to do B."

What they really needed was ask, "How do I do A?"

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