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wash sale Qs

Q1: It's about the holding period of the replacement security. There're several situations possible. Let's denote the purchase of shares (that will later be sold at a loss) as Xb. Let's denote the sale at loss as Xs and the other shares that were purchased within the wash sale period as Yb. Let's denote the wash sale period beginning and ending by [ and ]. Let's depict this on a timeline (left to right: past to future): Case 1: Xb ... [ ... Yb ... Xs ... ] Case 2: Xb ... [... Xs ... Yb ... ] Case 3: [... Ya ... Xb ... Xs ... ] Case 4: [... Xb ... Yb ... Xs ... ] Case 5: [... Xb ... Xs ... Yb ... ] So, if I need to adjust Y's basis due to the wash sale, I also need to adjust Y's purchase date (cite from pub550:"If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.") I basically want to confirm that Yb may adjust into the past (cases 1,2,4,5) and into the future (case 3). If it's not how this is done, then how is it?

Q2: If I adjust (reduce) the basis of some stock due to a wash sale, then it may happen that for that stock the adjusted basis is less than the proceeds and so, the loss has just moved to a different place. And this is asking to apply the wash sale rules again and again and again, until the loss is fully absorbed by the gains or there's no way to absorb it entirely (all wash sale rules exhausted) and it stays as a loss at which point some other rules may come in play (i.e. if it's a net loss there're limits on how much can be claimed). Did I get it right that after I've moved a loss to a different place (having applied the wash sale rules) I need to look again if that newly created loss may cause further wash sale adjustments?

I've read pub 550 and the following, but it's still unclear what the new holding period (the date of acquire) should be and if the wash sale rules apply recursively:

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Thanks, Alex

Reply to
Alexei A. Frounze
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You never reduce the basis. The disallowed loss is added to the basis of the replacement shares, so you increase the basis.

If the basis is less than the proceeds, you have a GAIN, not a loss. What I think you means to say is that it may happen that the increased basis is greater than the proceeds.

I'm not really sure what you're getting at. You have to make another sale to have another wash sale.

Reply to
Barry Margolin

Sorry, you're right, I increase the basis, of course.

So, if the shares whose basis was adjusted due to the wash sale rules were sold, then what? If selling them with this adjusted basis results in a loss (but wouldn't if I had not made the adjustment), then I need to check whether or not that results in another wash sale? Right?

Alex

Reply to
Alexei A. Frounze

The history of how your basis was established is irrelevant. Any time you sell for a loss you have to consider the wash sale rule if:

  1. You still have a holding in the security after the sale; or
  2. You purchase the same security within 30 days after the sale.

Note that "consider" doesn't mean that the rule automatically applies to #1.

Reply to
Phil Marti

In addition to the other posts, were Xb and Xs and Yb the same number of shares? If Xb and Xs were 10 shares, and Yb was 1 share, then the disallowed loss in Xs is only for 1 share. If Yb was 10 or more, then the disallowed loss is for all 10 shares (that is, none of the loss is allowed).

recursively:

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========================================= MODERATOR'S COMMENT: Please delete unnecessary text from the prior message when posting.

Reply to
removeps-groups

Huh? Selling half a position has the same rule as selling all of it.

Shouldn't that be "within 30 days before or after" and remove rule 1?

Reply to
Seth

You're so intent on making this harder than it is that you're not paying attention. If after a sale you hold no shares of the stock just sold, the wash sale rule cannot apply unless...

No, since I already dealt with the before part in number 1. If you buy something and within 30 days sell it for a loss but hold no remaining shares of the stock (my # 1), the wash sale rule doesn't apply, unless #2 applies.

Reply to
Phil Marti

Yes. Once you make the adjustment, you use the adjusted basis and purchase date when figuring out whether any future sales are wash sales.

You might want to take a look at

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It has lots of information on the wash sale rule, including links to software that can help if you have lots of trades that need to be reconciled.

Reply to
Barry Margolin

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