Does Wash Sale rule apply to short term Trading?

[NanoTick]

If you frequently trade one stock (say QQQQ, long only, no rest period longer than 30 days), by definition all your losing closes are wash sales which can't be counted in the P/L tally, so you would have to pay tax on your wining trades even your net P/L is negative, and this can go on year after year, forever, unless you stop trading QQQQ for 30 days.

Does this seem to be ridiculous or I missed something?

 

[rimshaker]

If you dont have trader status (which includes the mark-to-market option) in the eyes of the IRS... then yes, you're pretty much screwed.

All you can do is carry forward your losses to the new trade and offset the cost basis. You can keep this rollover effect going, but keep good track of your numbers. You're also limited to a loss claim of $3000 for the year.

 

[Free Thinker]

Quote from NanoTick:

If you frequently trade one stock (say QQQQ, long only, no rest period longer than 30 days), by definition all your losing closes are wash sales which can't be counted in the P/L tally, so you would have to pay tax on your wining trades even your net P/L is negative, and this can go on year after year, forever, unless you stop trading QQQQ for 30 days.

Does this seem to be ridiculous or I missed something?

it does not work like that. any time your total profits are greater than your total losses you have no wash sales.

 

[demoship]

I'm sure if you're a day trader and have hundreds of round trips every month, nobody's going to accuse you of a wash sale.

 

[Surdo]

Quote from demoship:

I'm sure if you're a day trader and have hundreds of round trips every month, nobody's going to accuse you of a wash sale.

That is BAD information. Why would you post this, if you are guessing?

The only grey area is netting all the BUYS/SELLS by day which is usually overlooked.

el surdo

 

[Triple X]

If you are a profitable trader (I assume this or you would give up) you really lose nothing. You add the loss into your cost basis for the next trade. After a few profitable trades, the loss is offset by your gains.

 

[NanoTick]

Quote from demoship:

I'm sure if you're a day trader and have hundreds of round trips every month, nobody's going to accuse you of a wash sale.

That's probably true. But I think IRS should really work out a better definition to make better sense.

 

[NanoTick]

Quote from rimshaker:

If you dont have trader status (which includes the mark-to-market option) in the eyes of the IRS... then yes, you're pretty much screwed.

All you can do is carry forward your losses to the new trade and offset the cost basis. You can keep this rollover effect going, but keep good track of your numbers. You're also limited to a loss claim of $3000 for the year.

I think the carry over stops at a profitable trade.

The $3000 limit only applies to ordinary income (e.g. W-2), for trading income there is no limit how much carryover loss you can offset.

 

[demoship]

Quote from Surdo:

That is BAD information. Why would you post this, if you are guessing?

The only grey area is netting all the BUYS/SELLS by day which is usually overlooked.

el surdo

Worst case scenario, is the IRS accuses you of a wash sale (if they overlook the fact that you made 100 round trips), then you have to explain it to them that it was not a wash sale, and you were day trading, and if need be, show them your records.

The wash sale rule is to prevent tax ABUSE, they're not going to stick it on you with a technicality. Anybody who makes 100 round trips on a stock to cover up a wash sale is out of their mind anyway, because they'll lose more on the commissions and slippage then they'd ever save by cheating the taxes.

 

[IronFist]

Quote from vhehn:

it does not work like that. any time your total profits are greater than your total losses you have no wash sales.

Really? Anytime I have a losing day trade I don't touch that stock again for 30 days because I don't understand and am afraid of wash sales.