How does a wash sale work? (in regard to taxes)

Hello everyone,

With tax time fast approaching I have been thinking about my financial moves this past year.

This was the first year I had a wash sale through the selling/buying of a stock.

My question is - if there is ANY wash sale involving the same stock does that prevent you from claiming a loss on a future total sell off of the same stock that is NOT a wash sale?

Basically here is what I did (example, lets say all these trades occurred within a 30 day window)

-------------
Bought 1000 shares of X stock at $10/share

Sold 1000 shares of X stock at $9/share

Bought 1000 shares of X stock at $8/share

Total sell off of the 1000 shares at $5/share
--------------

Can I claim the final loss from the total sell off on my taxes? If so, could it be deducted from the first purchase at $10/share (in this example a 50% loss), or must it be deducted from the purchase at $8/share and final sell off of $5/share?

Mikeafr said: Hello everyone,

With tax time fast approaching I have been thinking about my financial moves this past year.

This was the first year I had a wash sale through the selling/buying of a stock.

My question is - if there is ANY wash sale involving the same stock does that prevent you from claiming a loss on a future total sell off of the same stock that is NOT a wash sale?

Basically here is what I did (example, lets say all these trades occurred within a 30 day window)

-------------
Bought 1000 shares of X stock at $10/share

Sold 1000 shares of X stock at $9/share

Bought 1000 shares of X stock at $8/share

Total sell off of the 1000 shares at $5/share
--------------

Can I claim the final loss from the total sell off on my taxes? If so, could it be deducted from the first purchase at $10/share (in this example a 50% loss), or must it be deducted from the purchase at $8/share and final sell off of $5/share?
Technically speaking, the $1000 loss on the first sale is disallowed. But you add the $1000 loss to the basis of the second purchase. So the second purchase is treated as if you paid $8000 + $1000 = $9000 for it. So your loss on the second sale would be calculated as $5000 - $9000 = ($4000) and (assuming you made no other purchases) would be allowed in full. Also, the acquisition date of the second lot would be treated as being the same as the acquisition date of the first lot.

Practically speaking, if this all occurred in the same tax year and you completely closed out your position within a 30 day window, you would get exactly the same result if you just ignored the wash sale rule. If these transactions stretched across two years (Dec 2009/Jan 2010, for example), the loss would be pushed out to the second year.

Mikeafr said: Hello everyone,

With tax time fast approaching I have been thinking about my financial moves this past year.

This was the first year I had a wash sale through the selling/buying of a stock.

My question is - if there is ANY wash sale involving the same stock does that prevent you from claiming a loss on a future total sell off of the same stock that is NOT a wash sale?

Basically here is what I did (example, lets say all these trades occurred within a 30 day window)

-------------
Bought 1000 shares of X stock at $10/share

Sold 1000 shares of X stock at $9/share

Bought 1000 shares of X stock at $8/share

Total sell off of the 1000 shares at $5/share
--------------

Can I claim the final loss from the total sell off on my taxes? If so, could it be deducted from the first purchase at $10/share (in this example a 50% loss), or must it be deducted from the purchase at $8/share and final sell off of $5/share?The wash sale doesnt mean you cannot claim a loss, it only dictates when you can claim it.

Using your example, your first purchase results in a cost basis of $10,000 for those 1,000 shares. The subsequent sale for $9,000 results in a loss of $1k. But since you repurchase those 1,000 shares again for $8,000, you cannot claim the $1k loss - you have to add that amount to your cost basis of the second purchase, leaving the second 1,000 shares with an adjusted basis of $9,000. So when you sell those for $5,000, and do not repurchase, your loss from that sale is $4,000.

If course, the same brakes down into a per-share cost basis, in cases where you buy and sell different quantities (so only part of a sale is a "wash").

LH2004 said:
Practically speaking, if this all occurred in the same tax year and you completely closed out your position within a 30 day window, you would get exactly the same result if you just ignored the wash sale rule.You would get the same net gain or loss, but possibly the wash sale rule would turn short-term losses into long-term losses (or, maybe, a net short-term gain into a long-term gain, if there's a rebound during the second holding period).
Certainly that could happen if he purchased the original shares before the 30-day window in the OP. But the OP said "lets say all these trades occurred within a 30 day window." I'm having a hard time imagining how it could happen if you bought and sold both lots within a 30 day window as the OP stated.