Someone asked me why investor could not use broker's gain and loss report. Many brokers provide Gain and Loss report without considering the factor of WASH SALE RULES. Others claimed that their Gain and Loss report is compliant with WASH SALE RULES. Can you trust them? Never!
"I only had 5 trades a year, broker could not be wrong, so can I trust broker?" Never!
Here is a simple case with 2 trades involved. I placed a Limited Price Order with a broker, e.g. Scottrade. I wanted to buy 1000 shares of XYZ at price of $10. I did not choose the option AON(all or none). Because it is a Limited Price Order, my order was not executed at once. At the day end, I got confirmation that my order was fulfilled by 2 transactions, a 500 shares buy at $10 and another 500 shares buy at $10. 1 week later, I sold 500 shares at $9 with a net loss of $500. Now, I have 3 transactions listed on year end statement. a 500 shares O/L, a 500 shares O/L and a 500 shares C/L. Any broker who claims they have WASH SALE RULES built in their Gain and Loss report, will report
that you have $0 capital loss. It is WASH SALE RULES that your $500 loss is disallowed because you have bought 2nd 500 shares as replacement shares. However, this is a wrong result! Your real intention is to buy 1000 shares, the 2nd 500 shares is never an intention of replacing 1st 500 shares for continually holding. In real world, no broker will fix this kind of error for you. Their statement always list multiple transactions when a Limited Price Order executed in several transactions.
I use software like TradeMax to alter transaction record downloaded from broker. I use the Merge Transaction function to merger transaction when above mentioned scenario applied. In that case, I will have a 1000 share buy and a 500 shares sell in trades database. Software will generate a Schedule D with $500 loss.
"I only had 5 trades a year, broker could not be wrong, so can I trust broker?" Never!
Here is a simple case with 2 trades involved. I placed a Limited Price Order with a broker, e.g. Scottrade. I wanted to buy 1000 shares of XYZ at price of $10. I did not choose the option AON(all or none). Because it is a Limited Price Order, my order was not executed at once. At the day end, I got confirmation that my order was fulfilled by 2 transactions, a 500 shares buy at $10 and another 500 shares buy at $10. 1 week later, I sold 500 shares at $9 with a net loss of $500. Now, I have 3 transactions listed on year end statement. a 500 shares O/L, a 500 shares O/L and a 500 shares C/L. Any broker who claims they have WASH SALE RULES built in their Gain and Loss report, will report
that you have $0 capital loss. It is WASH SALE RULES that your $500 loss is disallowed because you have bought 2nd 500 shares as replacement shares. However, this is a wrong result! Your real intention is to buy 1000 shares, the 2nd 500 shares is never an intention of replacing 1st 500 shares for continually holding. In real world, no broker will fix this kind of error for you. Their statement always list multiple transactions when a Limited Price Order executed in several transactions.
I use software like TradeMax to alter transaction record downloaded from broker. I use the Merge Transaction function to merger transaction when above mentioned scenario applied. In that case, I will have a 1000 share buy and a 500 shares sell in trades database. Software will generate a Schedule D with $500 loss.
