Trying to Understand the Ramifications of My Accidental Wash Sale

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
robert27
Posts: 29
Joined: Thu Dec 29, 2016 4:59 pm

Trying to Understand the Ramifications of My Accidental Wash Sale

Post by robert27 » Sat Dec 08, 2018 3:50 pm

Hello,

I've tax loss harvested before and have always understood how to avoid wash sales. Nevertheless, the other day I harvested some losses only to later realize that I had just purchased the same shares less than a month prior (as Homer Simpson would say, doh!). Here's what I did:

Date Acquired_____Date Sold_____Cost Basis_____Proceeds_____Short Term Losses
7/25/18__________12/6/18_______$8,000_______$7537.02_______-$462.98
9/14/18__________12/6/18_______$5,000_______$4595.37_______-$404.63
11/9/18__________12/6/18_______$8,000_______$7772.26_______-$227.74

I sold the above three lots of Vanguard Total Stock Market Index Admiral (VTSAX) and exchanged the proceeds from all three lots to purchase Vanguard 500 Index Admiral (VFIAX). Obviously the third lot listed above was purchased within 30 days of my sale on 12/6. So my question is, are the losses from the just the THIRD lot disallowed? What about the first two? Also, what happens to those $227.74 of losses? Do they just "disappear" forever? I read somewhere that the disallowed losses get added to the cost basis of the identical shares that were purchased. But in this case, the identical shares were the ones that were sold.

Soon2BXProgrammer
Posts: 538
Joined: Mon Nov 24, 2014 11:30 pm

Re: Trying to Understand the Ramifications of My Accidental Wash Sale

Post by Soon2BXProgrammer » Sat Dec 08, 2018 3:53 pm

my understanding you don't have a problem. if you chose not to sell the lot acquired on 11/9, then you would have a problem.

basically if you sell shares at a loss, for 30 days on each side of the sale you can't buy shares and not sell them as well.

this is my primitive understanding.

student
Posts: 2663
Joined: Fri Apr 03, 2015 6:58 am

Re: Trying to Understand the Ramifications of My Accidental Wash Sale

Post by student » Sat Dec 08, 2018 4:01 pm

My understanding is that you are ok. For practical purpose, this is not a wash sale.

livesoft
Posts: 62841
Joined: Thu Mar 01, 2007 8:00 pm

Re: Trying to Understand the Ramifications of My Accidental Wash Sale

Post by livesoft » Sat Dec 08, 2018 4:16 pm

Vanguard.com does a pretty good job of indicating in your online account if you have made a wash sale, what the disallowed loss is, and where the disallowed loss went. For help with deciphering the information presented see this thread: viewtopic.php?t=179414

If no wash sale info is presented, then you can be assured you have no wash sale (because no other account is involved. If another account is involved, then Vanguard cannot deal with that.)

Unfortunately, there seems to be a lot of misinformation about wash sales. Your third lot sold is not a wash sale. Do you see why? One way to see why is to read the IRS instructions, but you have to read past the point where the instructions talk about the 30-day before thing. I think 99.9% of taxpayers don't read past that. See also www.fairmark.com about wash sales.

So you are now armed with a lot of information and won''t fear the wash sale anymore.
Last edited by livesoft on Sat Dec 08, 2018 5:03 pm, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.

MotoTrojan
Posts: 2585
Joined: Wed Feb 01, 2017 8:39 pm

Re: Trying to Understand the Ramifications of My Accidental Wash Sale

Post by MotoTrojan » Sat Dec 08, 2018 4:33 pm

robert27 wrote:
Sat Dec 08, 2018 3:50 pm
Hello,

I've tax loss harvested before and have always understood how to avoid wash sales. Nevertheless, the other day I harvested some losses only to later realize that I had just purchased the same shares less than a month prior (as Homer Simpson would say, doh!). Here's what I did:

Date Acquired_____Date Sold_____Cost Basis_____Proceeds_____Short Term Losses
7/25/18__________12/6/18_______$8,000_______$7537.02_______-$462.98
9/14/18__________12/6/18_______$5,000_______$4595.37_______-$404.63
11/9/18__________12/6/18_______$8,000_______$7772.26_______-$227.74

I sold the above three lots of Vanguard Total Stock Market Index Admiral (VTSAX) and exchanged the proceeds from all three lots to purchase Vanguard 500 Index Admiral (VFIAX). Obviously the third lot listed above was purchased within 30 days of my sale on 12/6. So my question is, are the losses from the just the THIRD lot disallowed? What about the first two? Also, what happens to those $227.74 of losses? Do they just "disappear" forever? I read somewhere that the disallowed losses get added to the cost basis of the identical shares that were purchased. But in this case, the identical shares were the ones that were sold.
To simplify, as long as you sell the lot from 11/9 you didn't generate a wash. If you had sold the others only then 11/9 would be a wash sale and it's cost-basis would be increased by the amount of the wash. If you went and sold it the next day for a loss, you'd get to write-off the difference from the increased basis and then you're back to where you actually are today (no wash, realized full loss).

robert27
Posts: 29
Joined: Thu Dec 29, 2016 4:59 pm

Re: Trying to Understand the Ramifications of My Accidental Wash Sale

Post by robert27 » Sat Dec 08, 2018 4:47 pm

Got it, thanks everyone for the help. I guess I got all excited about nothing. Glad that I understand this a bit better now.

Post Reply