Dividing up proceeds between long-term and short-term portion of a stock sale

Did they really purchase shares every 2 weeks? I've participated in a number of ESOPs, and they all worked by taking cash from my paycheck every pay period, but they only purchased the company stock once every 6 months.

It doesn't matter whether there's an overall gain. You have to calculate the gain or loss for each lot you purchased. TurboTax is correct: if some of them were losses, the losses have to be deferred because of the wash sale rules.

For regular stock, there's no averaging method allowed. For mutual funds you can average, although I think you still have to adjust for wash sales -- there's no way around the wash sale rule.

But it's not a wash sale. The holding periods were in parallel. It wasn't a sale then buy-back because there was no buy-back.

Even if there were a wash sale in there, since he disposed of ALL of the stock, the wash sale washes out.

The wash sale rule doesn't apply in the first place.

That doesn't matter. It's a wash sale if you purchased shares of the same company within 30 days BEFORE OR AFTER the sale. He purchased shares 4 weeks before, 2 weeks before, that same week, 2 weeks later, and 4 weeks later -- all of those are within the 30 day window (actually, depending on the day of the week of the sale, the first or last is probably outside the window).

He never said he sold all his shares, but maybe it was implied by his attempt to average everything. But even if he did, he purchased shares

2 and 4 weeks later -- those count as buy-backs, and will cause the wash sale rule to apply.

As for the purchases 2 and 4 weeks earlier, he sold those too - so the wash sale washes out.

I need a better explanation of the transactions before I can agree with that. He said that the price of the stock was increasing, so his sales should always be at a gain. Therefore, there's no wash sales. Even if one lot is at a loss, it has other purchases in adjacent pay periods that are gains that wash it out.

He wrote: "The issue that I came up against is that, because the short-term shares tended to cost more, this results in a short-term loss and a long-term gain." So the price was generally trending up in the long run, but dropped a bit before he sold, so the recent shares were sold at losses.

Since he automatically purchased more shares 2 and 4 weeks later, some of those sales (up to the number of shares he repurchased) become wash sales. He can't take the loss now, he has to add the disallowed losses to the cost basis of the new shares. So his eventual capital gain is reduced (or his eventual capital loss increased) when he later sells those new shares.

In order to ignore the wash sale rule completely, you have to sell all shares of the security, and not buy any new shares for 30 days. Or don't sell any of the lots that have losses -- it doesn't matter whether you have a net gain in total.

Yes, that is part of the reason; also, there are fees associated with the sale which make it harder to sell the more recent shares for a gain. The loss is actually very small in relation to the total sale, but it is a loss nonetheless.

Here is where the issue comes up. I get one check for the whole sale. The question is, if I sell, say, 20 shares (purchased at different time for different amounts) and receive $1000 after sales fees, do I have to report that I received $50 for each share? Or can I assign this $1000 another way? If all the shares cost a total of $950, for example, can I report a gain of $2.50 per share? This would require distributing the proceeds of the sale to each share based on the cost of that share. I have tried to look on the IRS website for a rule pertaining to this, but it is hard to know exactly what to search for.

Thanks for all the responses so far.

If all the shares were sold for the same price, then you received $50 for each share.

Read publication 550. It says "Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares."

So if you purchased 10 shares for $350, and 10 shares for $600, you have a gain of $150 on the first lot, and a loss of $100 on the second lot. If you purchased another 5 shares within 30 days of the sale, you you have a wash sale on 5 of the shares of the second lot, so you can only report $50 of loss, and you add $50 to the cost basis of the new shares.

Yes but in the OP's situation, he still recognizes the loss because the wash-sale reacquisition was itself sold. It washed out.

These are the reacquisition shares, and he never said anything about selling them.

Yes.

Almost certainly not. (If you instructed your broker to sell specific lots at different times/prices, then you'd report actual proceeds for each lot. But that's not the case.)

No.

Seth