Wash sale

Mar 21, 2012 3 Replies

If I sell a stock at a loss; and buy the same stock within 30 days before or after the sale, the loss is deferred.



What if I buy options on that stock to maintain my position -- immediately before or after the sale. Is that considered as wash sale and defer the tax loss?



To make sure I maintain the position in the stock I sold, I can buy calls *and* sell puts -- at a price that is close to the price I sold the stock. Of course, I can always sell the call or buy back the put (or both) and never own the stock again.



If the above is a wash sale, what if I only buy calls OR sell puts (but not both)? This strategy means I can own the stock only if the stock price moves the direction of my options; but not if the stock price move against me.



TIA


Buying a call on the same stock, no matter how far out of the money the call is, turns the loss sale into a wash sale.

Selling "deep in the money" puts (there's no precise standard on what's "deep in the money" in this regard) will also turn the loss sale into a wash sale.

Under the new IRS rules, am I correct that the brokerage firms have to report Wash Sales on the 1099B?

If yes, then they are going to determine "deep in the money" puts. Are they going to be super conservative and classify all stocks sold with puts written within 30 days as Wash Sales? Or how do we find out what is their definition of "deep in the money" puts?

TIA

Under the new rules, brokers will not report wash sales that are the result of mixed option and stock trades. The rules for broker reporting of wash sales are based on transactions in the *identical* security (as determined by CUSIP number). That said, the reporting requirements for taxpayers are based on transactions in "substantially identical" securities, the same requirement that has always been in the Code.

The taxpayer cannot rely exclusively on the broker's report.

Ira Smilovitz Leonia, NJ

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