Wash sale?

[MyVeryOwnSelf]

Suppose TP sells a block of shares that were acquired on different dates.
The net transaction is a profit, but some acquisitions had a profit while
others had a loss.

Then, TP acquires new shares of the same stock within 30 days.

Does the wash sale rule apply?

 

[JoeTaxpayer]

Suppose TP sells a block of shares that were acquired on different dates.
The net transaction is a profit, but some acquisitions had a profit while
others had a loss.

Then, TP acquires new shares of the same stock within 30 days.

Does the wash sale rule apply?

Yes

 

[Mark Bole]

Yes

OK, then, (sigh!) let me make sure I understand how it works, as I try
following IRS pub 550 (2007).

Here's an example. [...]
I realize this is a long post. If you've reached this far, thanks for
your patience.

Well, I got this far, but not by reading it all! ;-)

If I understand your original post correctly, the answer is: you have to
match the sales which resulted in a loss against the purchases made
within plus/minus 30 days, in FIFO order by default but possibly in some
other order if you followed the rules (i.e. notify broker in writing in
advance of sale). IOW, you can't report the sale as a single
mono-transaction, you have to break it out on Schedule D according to
the nature (long-term, short-term, wash, etc) of each portion of the sale.

It is true that some wash sales "net out" with subsequent or previous
non-wash sales, if for example a single stock is bought and sold over
and over.

-Mark Bole

 

[JoeTaxpayer]

MyVeryOwnSelf wrote:

Here's an example.

On 9-23-08, TP sold 281 shares of AbcCo. All were "identified shares"
(pub 550 page 43).

The shares had been purchased like this:

Part 1
Purchased 9-16-08
25 shares
Basis $2,816
Proceeds $1,875
P/L -941

Then, on 10-3-08, TP bought 288 shares of AbcCo for $17,280, or $60 per
share.

Any other shares held during September-October were acquired before
August.

Is the following correct?

There are two purchases in the wash sale window.

First is the "Part 1" purchase made 9-16-08. But since it was sold as
part of the 9-23-08 sale, there's no ongoing basis to affect. So the wash
rule doesn't come into play. Likewise, if (in a different example) Part 1
were a profit rather than a loss, the wash rule wouldn't come into play.

Shares sold at a loss may not be purchased again for the next 30 day to
avoid the wash rule. It doesn't matter when you bought the original
shares, just the fact that you sold at a loss and then repurchased
within the wash window. So your note above "since it was sold as
part of the 9-23-08 sale, there's no ongoing basis to affect" seems
incorrect. That's when I stopped reading.

Joe

 

[Alan]

OK, then, (sigh!) let me make sure I understand how it works, as I try
following IRS pub 550 (2007).

Here's an example.

On 9-23-08, TP sold 281 shares of AbcCo. All were "identified shares"
(pub 550 page 43).

The shares had been purchased like this:

Part 1
Purchased 9-16-08
25 shares
Basis $2,816
Proceeds $1,875
P/L -941

Part 2
Purchased 12-31-07
37 shares
Basis $4,567
Proceeds $2,775
P/L -1,792

Part 3
Purchased 12-22-07
98 shares
Basis $5,921
Proceeds $7,350
P/L +1,429

Part 4
Purchased 3-30-07
111 shares
Basis $6,789
Proceeds $8,325
P/L +1,536

Part 5
Purchased 2-1-07
10 shares
Basis $800
Proceeds $750
P/L -50

Then, on 10-3-08, TP bought 288 shares of AbcCo for $17,280, or $60 per
share.

Any other shares held during September-October were acquired before
August.

Is the following correct?

There are two purchases in the wash sale window.

First is the "Part 1" purchase made 9-16-08. But since it was sold as
part of the 9-23-08 sale, there's no ongoing basis to affect. So the wash
rule doesn't come into play. Likewise, if (in a different example) Part 1
were a profit rather than a loss, the wash rule wouldn't come into play.

Second is the 10-3-08 purchase. Apparently this purchase has to be
subdivided into three blocks for tax records: one block for part 2, one
for part 5, and one for the remainder. Part 1 doesn't participate because
it's already taken care of; Parts 3 and 4 don't participate because each
is a profit.

Ongoing, the blocks are treated like this:

Block 1 (for Part 2)
37 shares
Basis 60*37+1792 = 4,012
Treat as held since 12-31-07

Block 2 (for Part 5)
10 shares
Basis 60*10+50 = 650
Treat as held since 2-1-07

Block 3 (remainder)
241 shares
Basis 60*241 = 14,460
Treat as held since 10-3-08

On 2008 Schedule D, it seems easiest to report each of the five parts on
a separate line: the first three in the short-term list; the other two in
the long-term list. The figures will be as shown above for the five
parts. Then, there will be an extra line after Part 2's line and an extra
line after Part 5's line.

Part 2's extra line
Column (a) "Wash Sale"
Column (f) +1,792

Part 5's extra line
Column (a) "Wash Sale"
Column (f) +50

If (in a different example) the number of 10-3-08 shares purchased were
less than 47 (Parts 2 and 5 combined), the wash sale rule would be
applied to Part 5 first, with any excess applying to Part 2. Likely, one
Part would have to be split into two sub-Parts: one affected by the rule
and one not.

I realize this is a long post. If you've reached this far, thanks for
your patience.

I don't understand your statement about there not being any
ongoing basis so you can disregard the wash sale rule relating to
the 9/16 purchase and sale on 9/23.

You used specific ID. You replaced the shares you bought on 9/16
and sold at a loss on 9/23 within the 30 day window. Therefore,
the loss on 9/23 of the 9/16 shares is not a recognized loss. You
have to adjust the basis of those shares by the disallowed loss.

 

[MyVeryOwnSelf]

You used specific ID. You replaced the shares you bought on 9/16

and sold at a loss on 9/23 within the 30 day window. Therefore,
the loss on 9/23 of the 9/16 shares is not a recognized loss. You
have to adjust the basis of those shares by the disallowed loss.

Thanks. I see now that I left something out.

If I understand correctly, since the 9/16 shares were themselves purchased
within the 30 day window, there should be an extra $941 "Wash Sale" line on
Schedule D for Part 1, nullifying the loss for Part 1.

I don't understand your statement about there not being any
ongoing basis so you can disregard the wash sale rule relating to
the 9/16 purchase and sale on 9/23.

I meant that the wash sale for the 9/16 shares doesn't affect future tax
years. But (as you pointed out) I left out its wash-sale Schedule D line
for 2008.

 

[MyVeryOwnSelf]

You used specific ID. You replaced the shares you bought on 9/16

Thanks. I see now that I left something out.

If I understand correctly, since the 9/16 shares were themselves
purchased within the 30 day window, there should be an extra
$941 "Wash Sale" line on Schedule D for Part 1, nullifying
the loss for Part 1.

But also, the basis of the 9/16 shares would be adjusted too. As pub 550
says, "add the disallowed loss to the cost of the new stock or
securities." This nullifies the nullification.

After all, the idea is to "postpone the loss deduction until the
disposition of the new stock," which in this case is the same batch of
shares.

So the Part 1 transaction:
Purchased 9-16-08
25 shares
Basis $2,816
Proceeds $1,875
P/L -941

would be reported on Schedule D in two lines:

(a) 25 shares AbcCo
(b) 9-16-08
(c) 9-23-08
(d) 1,875
(e) 3,757
(f) 1,882

(a) Wash Sale
(f) 941

Is this right now?

 

[Alan]

But also, the basis of the 9/16 shares would be adjusted too. As pub 550
says, "add the disallowed loss to the cost of the new stock or
securities." This nullifies the nullification.

After all, the idea is to "postpone the loss deduction until the
disposition of the new stock," which in this case is the same batch of
shares.

So the Part 1 transaction:
Purchased 9-16-08
25 shares
Basis $2,816
Proceeds $1,875
P/L -941

would be reported on Schedule D in two lines:

(a) 25 shares AbcCo
(b) 9-16-08
(c) 9-23-08
(d) 1,875
(e) 3,757
(f) 1,882

(a) Wash Sale
(f) 941

Is this right now?

Maybe it's Sunday or maybe it's that we're just two days away
from the election or that Texas tech beat Texas..... but this is
getting too complicated....

You sold 25 shares on 9/23 at a loss of $941. You enter that in
Part I of the 1040. Right below that entry you enter the wash
sale that includes a +941 in Column f. You are done with that
transaction.

Your adjusted basis in the 25 replacement shares is the $1500 you
paid for them plus the disallowed loss of $941 = $2441. This is
the same as your original cost of $2816 plus your add'l cost of
$1500 less your proceeds of $1875.

 

[Arthur Kamlet]

.....
Maybe it's Sunday or maybe it's that we're just two days away
from the election or that Texas tech beat Texas....

In what has to be the most exciting, well played game of the season!

I live here in Big Ten country, in a town where poisonous nuts
are celebrated, but did watch just about the whole game, and those
Red Raiders playd enormously well. As did Texas.

. but this is
getting too complicated....

You sold 25 shares on 9/23 at a loss of $941. You enter that in
Part I of the 1040. Right below that entry you enter the wash
sale that includes a +941 in Column f. You are done with that
transaction.

Part I of the 1040 schedule D, that is.

 

[MyVeryOwnSelf]

You sold 25 shares on 9/23 at a loss of $941. You enter that in

Part I of the 1040. Right below that entry you enter the wash
sale that includes a +941 in Column f. You are done with that
transaction.

Your adjusted basis in the 25 replacement shares is the $1500 you
paid for them plus the disallowed loss of $941 = $2441. This is
the same as your original cost of $2816 plus your add'l cost of
$1500 less your proceeds of $1875.

I think I see the disconnect.

When I read in pub 550 page 55, "Match the shares bought in the same order
that you bought them, beginning with the first shares bought," I looked at
the shares bought in the wash-sale time window:
9-16-08 bought 25 shares
10-3-08 bought 288 shares
So I matched the 9-16-08 shares first, even though they were sold as part
of the wash sale.

Your response indicates that the shares sold should not be matched, right?
This is logical, though the case doesn't seem to be spelled out
specifically in pub 550.