Please help me understand the "wash rule".

S

street carp

Here's the situation... I am a day trader and soon I will be doing my own taxes. During 2007 one day I sold a stock for a $500 profit. Then one week later I entered a new trade on the identical stock and lost $20,500 on it. (Less than 30 days away from each other.)

Does the wash sale rule require me to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though I actually lost $20,000 on the two trades combined? I cannot deduct the $20,500 loss now? (In other words, I made $50K total in trading over 2007, but must pay taxes on $71K because of the wash sale.)

This is what I understand from the IRS instructions. (BTW, next year I will get "trader status" to avoid this "wash sale" problem in the future.)

Hope this was clear,
Street Carp
 
All the wash rule says is that if you sell a stock to take a short-term loss, you may not immediately buy it back and still keep the tax loss.

You're not allowed to have your cake(position) and eat it(tax lass) too.

You can buy back the stock you dumped on the 31st day after you dumped it.

For more details, look up wash sale on irs.gov.
 
Quote from street carp:

Here's the situation... I am a day trader and soon I will be doing my own taxes. During 2007 one day I sold a stock for a $500 profit. Then one week later I entered a new trade on the identical stock and lost $20,500 on it. (Less than 30 days away from each other.)

Does the wash sale rule require me to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though I actually lost $20,000 on the two trades combined? I cannot deduct the $20,500 loss now? (In other words, I made $50K total in trading over 2007, but must pay taxes on $71K because of the wash sale.)

This is what I understand from the IRS instructions. (BTW, next year I will get "trader status" to avoid this "wash sale" problem in the future.)

Hope this was clear,
Street Carp
More...

There is such a thing as an experienced accountant.
Getting professional advice on ET... is completely irresponsible.

Anyone in your family have cancer? AIDS? Radiation poisoning?
I have no medical experience... but I'm sure I can give you advice.
 
Quote from tradertony76:

All the wash rule says is that if you sell a stock to take a short-term loss, you may not immediately buy it back and still keep the tax loss.
More...

So you are saying the fact I profited first means the loss a week later can still be deducted?

Thanks,
Street Carp
 
Quote from street carp:

Here's the situation... I am a day trader and soon I will be doing my own taxes. During 2007 one day I sold a stock for a $500 profit. Then one week later I entered a new trade on the identical stock and lost $20,500 on it. (Less than 30 days away from each other.)

Does the wash sale rule require me to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though I actually lost $20,000 on the two trades combined? I cannot deduct the $20,500 loss now? (In other words, I made $50K total in trading over 2007, but must pay taxes on $71K because of the wash sale.)

This is what I understand from the IRS instructions. (BTW, next year I will get "trader status" to avoid this "wash sale" problem in the future.)

Hope this was clear,
Street Carp
More...

guys: wash sale is a deferred system. you don't lose your 'loss' just because you retraded a position.

If the combination of trades was done 31 days before the end of the year, you get to take the loss in 2007. Otherwise, the loss possibly gets deferred so you can only take it in 08.

If you are still holding the stock now before you allowed the sale to wash "clean" for a month at any point in 07, I believe you definitely won't be able to take the loss until 2008, though..

It makes sense to get trader status if you are a trader. If you declare now, next tax yr you'll be able to not have to worry about these things.

And the advice about taking professional advice from strangers is good to. Verify all of this with your tax accountant. For example, I don't have to be right because i personally have trader status (and therefore wash sale restrictions don't matter to me).
 
Quote from DeeDeeTwo:

There is such a thing as an experienced accountant.
Getting professional advice on ET... is completely irresponsible.

Anyone in your family have cancer? AIDS? Radiation poisoning?
I have no medical experience... but I'm sure I can give you advice.
More...



Robert Green i trust him thats it
 
Quote from DeeDeeTwo:

There is such a thing as an experienced accountant.
Getting professional advice on ET... is completely irresponsible.

Anyone in your family have cancer? AIDS? Radiation poisoning?
I have no medical experience... but I'm sure I can give you advice.
More...

I'm not sure what to take from this. This is the career trader section. I will assume a few people here do their own taxes and can help clarify the "wash rule". Not a matter of life and death...
 
Quote from street carp:

Here's the situation... I am a day trader and soon I will be doing my own taxes......
More...

I think you may be over worrying here. I assume you will be using Turbo Tax or some similar program. Will this not walk you thru each step? I do not do my own taxes, but I think one of the tax programs will step you thru it. Perhaps others can chime in.
 
Quote from scriabinop23:

guys: wash sale is a deferred system. you don't lose your 'loss' just because you retraded a position.

If the combination of trades was done 31 days before the end of the year, you get to take the loss in 2007. Otherwise, the loss possibly gets deferred so you can only take it in 08.

If you are still holding the stock now before you allowed the sale to wash "clean" for a month at any point in 07, I believe you definitely won't be able to take the loss until 2008, though..

It makes sense to get trader status if you are a trader. If you declare now, next tax yr you'll be able to not have to worry about these things.

And the advice about taking professional advice from strangers is good to. Verify all of this with your tax accountant. For example, I don't have to be right because i personally have trader status (and therefore wash sale restrictions don't matter to me).
More...

scriabinop23,

Thanks for the response. No, the trades occurred in back in June and I was in and out of each trade in one day. BTW, I'm not taking anyones response as gospel either. I know there are many delusional losers there are hanging out in forums because the can't succeed in the real world, because they feel safe to lie or falsely brag behind a monitor.

But hey, I've read a lot or similar posts to mine, and others asking career advice. I never noticed anyone getting their panties in a bunch like that before though.

Thanks again,

Street Carp
 
Quote from BSAM:

I think you may be over worrying here. I assume you will be using Turbo Tax or some similar program. Will this not walk you thru each step? I do not do my own taxes, but I think one of the tax programs will step you thru it. Perhaps others can chime in.
More...

I don't use Turbo tax because of my present situation (for one I rent) I just take the standard deduction. The only difficulty is the time-consuming use of schedule D. But after I get trader status I won't have to worry about that either.
 
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