HELP Wash Sale Idiot - Anything I can do?

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chickadee
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HELP Wash Sale Idiot - Anything I can do?

Post by chickadee » Fri Jan 11, 2019 3:44 pm

Well, I did my annually rebalancing today, completely forgetting I had TLH some identified shares of VTI in my TAXABLE account on 12/28/18.

I bought VTI in two Roth IRAs and one SIMPLE IRA earlier today.

I'm assuming my broker won't report / track this as it was in different accounts, so it would be up to me.

What to do now? This is my first TLH attempt, and I bungled it, which is fine and a good lesson I guess. Write a post-it note to future you, dummy!

But I have no idea how to account for this.

EDIT: Did a little digging. Guess I've now lost the loss permanently?
https://www.kitces.com/blog/irs-shuts-d ... technique/

Guess selling the shares today wouldn't "erase" my mistake? :oops:

So as long as I don't claim the tax loss, there isn't any accounting to do here? I can't increase the basis in the IRAs, so that would just be that?

student
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by student » Fri Jan 11, 2019 4:26 pm

Don't feel bad. I have done this in the past. I reported the wash sale and lost the tax loss forever. I don't think selling it would erase the mistake.

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chickadee
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by chickadee » Fri Jan 11, 2019 4:28 pm

So when the broker sends me my 1099 on the taxable account, I just "zero" out the loss by entering the amount in the Wash Sale box in TaxAct?

Still, what an idiot. I just can't believe I forgot something I did only two weeks ago. My mind is a sieve!

livesoft
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by livesoft » Fri Jan 11, 2019 4:54 pm

I would be surprised if your wash sale was a full wash sale and not a partial wash sale.

Here is an example of how to treat it on your tax return:

viewtopic.php?p=2784973#p2784973

Your tax form does not have a "wash sale box", but maybe your tax prep software gives you one?

HRBlock has an adjustment question which I guess is what you mean, so tax forms and probably Tax Act have a place to enter the adjustment.
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FactualFran
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by FactualFran » Fri Jan 11, 2019 5:04 pm

Whether the broker reports to you and the IRS that there has been a wash sale depends on whether the taxable account and the IRAs are with the same broker.

If the broker reports that there has been wash sale, then you should likely be able to include in your income tax return exactly what the broker reports. Otherwise, "zero out" the loss only if you purchased within 30 days at least as many replacement shares as you sold at a tax loss. If you purchased fewer shares than sold, the allowed loss is

1 - (number of replacement shares) / (number of shares sold)

times the loss.

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chickadee
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by chickadee » Fri Jan 11, 2019 5:31 pm

I sold 120 VTI shares in the taxable account on 12/28. I bought 118 VTI in 3 accounts (two Roths and a one SIMPLE) today.

The basis of the shares was $16,485. The proceeds from the 12/28 sale were 15,253. So I had a loss of $1,232.

TaxAct has a user input box 1g on the Form 1099-B that says "Wash sale loss disallowed."

So 118 divided by 120 equals .9833 x $1232 = $1211. So guess I input $1211 into box 1g, enjoy my $21 loss and move on with my life.

Adding the math in here for future wash sale idiots if they search the forum.

If I've got it wrong, lemme know!
Last edited by chickadee on Fri Jan 11, 2019 5:39 pm, edited 1 time in total.

MotoTrojan
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by MotoTrojan » Fri Jan 11, 2019 5:38 pm

FactualFran wrote:
Fri Jan 11, 2019 5:04 pm
Whether the broker reports to you and the IRS that there has been a wash sale depends on whether the taxable account and the IRAs are with the same broker.

If the broker reports that there has been wash sale, then you should likely be able to include in your income tax return exactly what the broker reports. Otherwise, "zero out" the loss only if you purchased within 30 days at least as many replacement shares as you sold at a tax loss. If you purchased fewer shares than sold, the allowed loss is

1 - (number of replacement shares) / (number of shares sold)

times the loss.
I believe this to be false. The broker is only legally obligated to account for a wash based on transactions within that specific account. I also believe none of the major brokers go beyond their obligations (they wouldn’t note a wash between taxable and IRA accounts held together).

libralibra
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by libralibra » Fri Jan 11, 2019 6:26 pm

post removed
Last edited by libralibra on Wed May 29, 2019 11:04 pm, edited 1 time in total.

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dratkinson
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by dratkinson » Fri Jan 11, 2019 6:35 pm

There is a mechanical step we can take to help us idiot-proof our TLHing. What?

Own only unique investments in our taxable account. By that I mean, nothing we own in taxable is duplicated in our tax-advantaged accounts.

So if we own VTI in our taxable-advantaged accounts, then own S&P500 index (VFINX) and extended market index (VEXMX) in our taxable account. (100% VTSAX/VTI = 80% VFINX + 20% VEXMX.)

Or even simpler, own all-in-one funds (target date retirement, or LifeStrategy) in our TA accounts, and VTSAX/VTI in our taxable account.

Owing only unique funds in our taxable account solves two problems:
--Us forgetting, buying and creating a wash sale.
--Us forgetting a distribution, and it buying and creating a wash sale.



Disclosure. I need all of the help I can get to keep from shooting myself in the foot when TLHing.

Unique funds. I own unique funds in my taxable account.

Redirected distributions. I redirect all distributions in taxable to savings/mmkt to prevent an inadvertent wash sale.

Transaction checklist. I've learned that I need a transaction checklist to remind me of everything I must check (IRS requirements, fund family requirements, banking requirements) before selling/TLHing or buying. So I created one.

Calendar. I've learned that I must lay all transactions out on a calendar, and compute intervening days, to help me avoid problems.

I only execute a transaction if it passes the (1) transaction checklist and (2) calendar creation steps, (3) and I double-check everything a few days later with a clear mind.

I posted my planned for 4-month TLHing round trip here: viewtopic.php?p=4217661#p4217661

There is enough flexibility in the process to make changes as they arise.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

rkhusky
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by rkhusky » Fri Jan 11, 2019 8:52 pm

libralibra wrote:
Fri Jan 11, 2019 6:26 pm
This is a pure guess, and not legal advice, but as soon as you realized this, you coulda bought the 118 back in the same taxable account (today). The wash sale would have then been noted by the broker and no need to involve your IRAs at all (and no loss of loss, just deferred to when you sell the 118).

There's still an hour left in extended trading, so maybe it's still possible (not sure how days are counted wrt extended trading, though, but I assume it's still counted as today).

The interesting question this brings up is if you bought it back tomorrow - the broker would still count it as a wash sale, but that would be wrong since the IRA purchases occurred a day earlier. I wouldn't know how to untangle that when you report taxes.
There is a wash sale matching rule. You match shares of earliest sales for losses with earliest replacement share purchases and work forward in time until you run out of matches.

libralibra
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by libralibra » Sat Jan 12, 2019 1:57 pm

post removed
Last edited by libralibra on Mon May 27, 2019 11:14 pm, edited 1 time in total.

kaneohe
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by kaneohe » Sat Jan 12, 2019 6:55 pm

chickadee wrote:
Fri Jan 11, 2019 3:44 pm
..........................................

What to do now? This is my first TLH attempt, and I bungled it, which is fine and a good lesson I guess. Write a post-it note to future you, dummy!
..........................................
Perhaps you can invent a TLH "breathalyzer" that would prevent us from getting on the TLH road unless we were
in the right shape :happy

rkhusky
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Re: HELP Wash Sale Idiot - Anything I can do?

Post by rkhusky » Sat Jan 12, 2019 8:04 pm

libralibra wrote:
Sat Jan 12, 2019 1:57 pm
rkhusky wrote:
Fri Jan 11, 2019 8:52 pm
libralibra wrote:
Fri Jan 11, 2019 6:26 pm
This is a pure guess, and not legal advice, but as soon as you realized this, you coulda bought the 118 120 back in the same taxable account (today). The wash sale would have then been noted by the broker and no need to involve your IRAs at all (and no loss of loss, just deferred to when you sell the 118 120).
There is a wash sale matching rule. You match shares of earliest sales for losses with earliest replacement share purchases and work forward in time until you run out of matches.
Maybe someone can check this, but the IRS seems to track holding periods only with the granularity of a day (probably for historical reasons dating back to when trading was done by hand and paper). All transactions on the same day would then be considered to happen simultaneously. For example, the info reported on your monthly statements and the info requested on tax forms only have the date, so if you make 2 trades on the same day, there is no order.

As more evidence that time of day does not matter, look at the way the wash sale period is calculated. If you sold a stock this morning and 30 days later you buy it back in the afternoon, you are technically not in the 30 day window (it's been 30 days plus a few hours), however, the IRS only looks at the date, not time of day, so it is counted as exactly 30 days only.
My comment was directed at this paragraph:
libralibra wrote:
Fri Jan 11, 2019 6:26 pm
The interesting question this brings up is if you bought it back tomorrow - the broker would still count it as a wash sale, but that would be wrong since the IRA purchases occurred a day earlier. I wouldn't know how to untangle that when you report taxes.
The following link addresses the same day rule, but I don't think it answers the question about time of day:
https://fairmark.com/investment-taxatio ... -day-rule/

It seems like the purchase of mutual funds would be considered to be purchased/sold simultaneously at the end of the day, but I am not sure about stocks or ETF's. So, if you bought mutual fund replacement shares in a taxable account and in an IRA on the same day, perhaps you could pick the the shares in the taxable account as causing the wash sale, so as to preserve the loss. On the other hand, Vanguard doesn't allow you to buy back into a fund that you have sold until 30 days have past, except via mail or perhaps by setting an automatic purchase.

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