How do wash sales work for investing after daytrading it?

[dtryan]

I am a daytrader but now want to invest due to the low prices. Let's say all in the time span of under 30 days trading the same stock:

Trade 1: I lose $5k after buying and selling.

Trade 2: I lose 2k after buying and selling.

Trade 3: I make $10k after buying and selling.

Trade 4: I am up $7k on this new open position and am still holding

Will Trade 3 cancel out Trade 1 and 2s losses? Basically can I trade myself out of a wash sale loss if I make enough profit even after buying and selling within 30 days? Or can the wash sale loss never go away until I avoid the stock for 30 days?

 

[Girija]

I think it is a wash if traded on a regular brokerage account. Even if the investment was on a ira account wash sale still stands even though you don't get a 1099 for the ira account. That appears to be the law.
If you are a day trader check out the mark to market deduction.

 

[dtryan]

I think it is a wash if traded on a regular brokerage account. Even if the investment was on a ira account wash sale still stands even though you don't get a 1099 for the ira account. That appears to be the law.
If you are a day trader check out the mark to market deduction.

I would definitely qualify for mtm but what happens if I want to invest in half the stocks I own and actively daytrade the other 50%? Does the holding period of 31 days be negated by my daily trades for the long term holds?

 

[Girija]

If you want to claim a loss then you cant buy an identical security and that includes options on the underlying security for 31 days past the loss. If there is an entry about the sale and purchase on 8849 then that's what Irs knows.
The only legal way as I see it to get around the wash sale is by adding the loss to the cost of the new purchase and marking it with a higher basis.

But my question to you is why are u having to report it as a wash sale when you can claim it as a mtm. Wondering if mtm is unattractive in your situation.

 

[dtryan]

If you want to claim a loss then you cant buy an identical security and that includes options on the underlying security for 31 days past the loss. If there is an entry about the sale and purchase on 8849 then that's what Irs knows.
The only legal way as I see it to get around the wash sale is by adding the loss to the cost of the new purchase and marking it with a higher basis.

But my question to you is why are u having to report it as a wash sale when you can claim it as a mtm. Wondering if mtm is unattractive in your situation.

My question was would I be disqualified from mtm if I daytrade 200 times a day while mixing it up with long term holds in the same account? Would I lose mtm status if I held an investment for more than 31 days and for over a year? Or would my active daytrades lower the 31 day average security holding period so I can still qualify for mtm?

 

[vanzandt]

My question was would I be disqualified from mtm if I daytrade 200 times a day while mixing it up with long term holds in the same account? Would I lose mtm status if I held an investment for more than 31 days and for over a year? Or would my active daytrades lower the 31 day average security holding period so I can still qualify for mtm?

Just download it all from your broker into Turbo-Tax Premiere 2019. Plus if you have income producing real-estate it does that too. It does all the work, spoon feeds ya. If I can do it anyone can.

 

[S2007S]

I wouldn't even try and figure it out, way too confusing. Just have the tax software figure it out for you in 2021. I have had plenty of wash sales. Would be great if they could eliminate wash sales but that is something that will never happen.

 

[Fonz]

To avoid that, I separate day trading activities from investments: Investments in my name and day trading inside a separate entity (LLC). The company made the MTM election, not me. So, the company has 2 brokerage accounts for day trading and I have 2 others in my name for investments.
It makes things more complicated but at the end, if your day trades are profitable (see Trader Tax Status and MTM on this forum), I believe this is one of the best solution.

 

[Scataphagos]

Would be great if they could eliminate wash sales but that is something that will never happen.

Agree. I see wash sales as a moronic, no value, time waster.... should be abolished.

I'd love to see the explanation as to why wash sales are still on the book.

 

[sprstpd]

Agree. I see wash sales as a moronic, no value, time waster.... should be abolished.

I'd love to see the explanation as to why wash sales are still on the book.

If the wash sale rule didn't exist, you could sell all your losers at year end and then immediately buy them back in order to defer taxes. The IRS wants their fair share.