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wash sale question

I posted this on misc.invest.stocks and it was suggested that i ask here: if i have a loss on a daytrade but had a gain on another daytrade of the same stock less than 30 days prior do i "wash" the loss into the cost of the earlier trade? seems stupid to wash a loss into a position that's already closed but the way the rule reads it looks like that's how it's supposed to be reported. to make this more clear, here's what happened:

2/22/06 gain of $418 3/06/06 loss of $172

i believe the proper way to report is to add $172 to cost for 2/22/06 such that gain is only $246 and make 3/06/06 a wash sale. this was one of the replies:

"The wash sale rules really only apply when the transactions > bridge two tax years. You can trade all you want throughout > the year, but if you close out your position prior to the end > of the tax year and stay out for the required period of time, > the wash sale issues are really not important."

from:

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** the problem i have is that the IRS doesn't indicate anything similar to the above quote in publication 550 (where it defines wash sales) so are traders required to report wash sales within the year (even if they have no carry-over) or can they just be reported as losses when they occur. obviously it would be much simpler to do the latter and the tax liability would be the same.
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Reply to
mike
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You are looking at the *closing date* of the prior gain transaction. The thing that triggers a wash sale is the initiating of an open position, so when that stock was

*bought* must be within 30 days of the sale of the possible wash sale. Since you called them *day trades* perhaps the purchase was within the 30 days. If so, the reason you can ignore it and you'll never find a rule saying so, is that it makes no TAX difference whether you report it or not. IF the IRS should challenge you there can be no penalty because there is no tax difference. Because of that you need not look at closed posititions for the triggers to wash sales.
Reply to
ed

yes, the day trades were bought and sold in the same day.

thanks for the reply. can that logic be extended to say that if all positions are closed by the end of the year (and no new purchases within the first 30 days of the new year) that the wash sale rule can be ignored? in my opinion, the IRS should make it clear that it's not necessary to report wash sales when they don't affect the amount of tax owed because it just makes the tax form more complex for them to read (not to mention the extra work for the filer).

Reply to
mike

Yes, that is the typical advice to anyone creating a lot of wash sales throughout the year. Just close them all out instead of worrying about wash sales. If the IRS objects they may require you to demonstrate how this works, but I doubt it. They have better things to do with their time and I'm sure the auditors have already figured this out. ed

Reply to
ed

thanks, that will make bookkeeping much easier!

Reply to
mike

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