How to treat multiple/subsequent loss sales in wash sale stock transactions

USA Discussion in 'General Tax Discussion' started by DDChiang, Oct 8, 2018.

  1. DDChiang

    DDChiang

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    If you bought and sold the same stock multiple times within a 30 day period, each at a loss, how do we treat those losses?

    I see clear examples of being able to add the loss of the first to the second transaction if a capital gain was made, but what if the second sale transaction was also at a loss? What if you make 4 transactions, all at a loss?

    Do the losses for each transaction accumulate like a snowball and get added onto each subsequent sale to calculate if a gain/loss has actually been made? And what if a gain never happens (the last transaction ends up being less than the cost paid during the first transaction)?

    Example transactions (within 30 day timeline):

    1/1: Buy 3 Amazon shares, at $500/share
    1/5: Sell 3 Amazon shares at $450/share
    1/5: Buy back 3 Amazon shares at $420/share
    1/6: Sell 3 Amazon shares at $400/share
    1/7: Buy back 3 Amazon shares at $390/share
    1/8: Sell 3 Amazon shares at $440/share
     
    DDChiang, Oct 8, 2018
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  2. DDChiang

    bklynboy VIP Member

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    Aren't these subject to wash sale rules which prevent you from taking a capital loss?
     
    bklynboy, Oct 10, 2018
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  3. DDChiang

    DDChiang

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    Yes, but I read that you could apply those capital losses to offset a gain the next time you sell the shares (the ones that put you in the wash sale position).

    My question is what happens if you've made multiple loss sales transaction after the first transaction. Do the losses (not taken yet because of wash sale rule) keep accumulating and can you apply them the moment you sell the shares for a gain?
     
    DDChiang, Oct 10, 2018
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  4. DDChiang

    bklynboy VIP Member

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    Not a tax expert but this is my read of IRS rules as we apply them. Effectively any disallowed loss is added to the tax basis when repurchased such that if you ever sell at a gain you are taxed only on the stepped up basis since you never got the benefit of any losses. Here is how I see your amounts working:

    On first sell 50 loss is disallowed. On second buy, you add the disallowed loss to the basis so new taxable basis is 470 (420+50 loss disallowed). On second sale, 70 loss is also disallowed as its sale price is lower than basis of 470. On last buy new cost basis is 460 (390+70). On last sale, gain is still not taxed as its below prior cost basis of 440. And so on ....
     
    bklynboy, Oct 10, 2018
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