Tax Loss Harvesting Wash Sale Question

[NYCaviator]

I’m still wrapping my head around wash sales. I think I have a good handle from the forum and wiki, but maybe not.

One of my concerns is that I contribute new money to the taxable account every few weeks and have dividend reinvestment on.

Is it true that if I am doing TLH, as long as I also sell all shares I bought in the last 30 days before buying a different security, there would be no wash sale?

In other words Jan 10 I buy 100 shares of VTI. On Jan 20 I buy another 100 shares of VTI. On Feb 1 there’s a major correction and I want to TLH. If I sell all 200 shares that were purchased in the last 30 days before investing in a different security, there’d be no wash sale?

[livesoft]

There would be no wash sale.

But suppose there was a wash sale, what would you do then? <- Serious question.

[arcticpineapplecorp.]

Yes, though you may have gains on some lots and losses on others depending on what happened in between the purchases and the sale. But yes, you are ensuring that you have no replacement shares leftover that you purchased 30 days before or after any other shares sold for a loss.

[NYCaviator]

There would be no wash sale.

But suppose there was a wash sale, what would you do then? <- Serious question.

Nothing I could do that I’m aware of. Assuming the dividend reinvestment or purchase that occurred in the prior 30 day period wasn’t substantial, I’d just move on with the knowledge that there was a wash sale.

[livesoft]

Nothing I could do that I’m aware of. Assuming the dividend reinvestment or purchase that occurred in the prior 30 day period wasn’t substantial, I’d just move on with the knowledge that there was a wash sale.

Sorry, but that's not what I would do. I would follow the IRS rules laid out in Publication 550 and add the temporarily disallowed loss to the cost basis of the shares that created teh wash sale. By adding the loss to their cost basis that increases their cost basis, so that they will have a bigger loss when sold. And the "bigger loss" will exactly match the disallowed loss, so that the dissallowed loss with become realized loss.

And your brokerage will do all the above automatically for you if this all happens within the same account which is the situation you described. So basically, the wash sale does not cause you to lose any money at all nor create any worries at all. Hmmm, wait a minute that's pretty much what you wrote you would do.

[rkhusky]

I’m still wrapping my head around wash sales. I think I have a good handle from the forum and wiki, but maybe
In other words Jan 10 I buy 100 shares of VTI. On Jan 20 I buy another 100 shares of VTI. On Feb 1 there’s a major correction and I want to TLH. If I sell all 200 shares that were purchased in the last 30 days before investing in a different security, there’d be no wash sale?

Depends on how you sell them. If you sell one lot and then sell the other lot you will have a wash sale, but you will recover the loss when selling the second lot. The brokerage will take care of the accounting for you.

If you sell both lots together, then there shouldn’t be a wash sale, but could be if the brokerage’s computers aren’t sensibly programmed. The brokerage would take care of the accounting for you, and you would still claim your full loss.