Question about wash sale rules....

[SoyUnGanador]

I get the generally how the wash sale rule works - if you sell a security (here, stock) for a loss and buy it back within 30 days you cannot take the loss.

But what happens to that loss? I have to be able to take it at some point, don't I? Is it when I ultimately sell the new (same ticker symbol) stock that I purchased?

And let's say I am day trading a single stock, selling at the end of each day and buying some time during the next day, over and over.

On day 1 I have a $10 gain.
On day 2 I have an $8 loss.
On day 3 I have a $12 gain.
On day 4 I have a $6 loss.

Over and over and over again.

Since I am buying the stock again after every loss day, does that mean that in that example my $8 and $6 loss are gone, and I have to pay tax on the full $22 of gain? That is not fair at all since I really am bearing those $8 and $6 losses.

How does the rule work in those situations?

Thank you.

 

[Occam]

I am not an accountant but my understanding is that the "disallowed" cost basis should always get pushed to some new position, so you should never "lose" cost basis -- it just gets moved to a position that is closed out at some later date.

You can familiarize yourself with the rules and their complexities with sites such as fairmark.com which has good advice IMO.

 

[DaveV]

https://greentradertax.com/how-to-avoid-taxes-on-wash-sale-losses/

 

[nooby_mcnoob]

It's complete nonsense that there is this kind of a gotcha rule waiting to trip you up. Another reason why futures are better.

 

[Sig]

I get the generally how the wash sale rule works - if you sell a security (here, stock) for a loss and buy it back within 30 days you cannot take the loss.

But what happens to that loss? I have to be able to take it at some point, don't I? Is it when I ultimately sell the new (same ticker symbol) stock that I purchased?

And let's say I am day trading a single stock, selling at the end of each day and buying some time during the next day, over and over.

On day 1 I have a $10 gain.
On day 2 I have an $8 loss.
On day 3 I have a $12 gain.
On day 4 I have a $6 loss.

Over and over and over again.

Since I am buying the stock again after every loss day, does that mean that in that example my $8 and $6 loss are gone, and I have to pay tax on the full $22 of gain? That is not fair at all since I really am bearing those $8 and $6 losses.

How does the rule work in those situations?

Thank you.

It does just get added to your basis, so when you finally do the easy thing and stop trading it for 30 days before or after Jan 1st you can take the loss for tax purposes that year.

 

[inquiet]

It does just get added to your basis, so when you finally do the easy thing and stop trading it for 30 days before or after Jan 1st you can take the loss for tax purposes that year.

Do most brokers add to the cost basis when daytrading options? Etrade makes the adjustments for equities in my case.

 

[Sig]

Do most brokers add to the cost basis when daytrading options? Etrade makes the adjustments for equities in my case.

The basis isn't actually something they report at all, so it's just a courtesy if they do the adjustment for you and YMMV between brokers.

 

[inquiet]

The basis isn't actually something they report at all, so it's just a courtesy if they do the adjustment for you and YMMV between brokers.

Thanks. So I'm planning to primarily daytrade options this coming year. I suppose the same wash sale rules apply? I know the posters on this thread aren't CPA's just looking for experience other traders may have had with this. Appeciate any replies.

 

[Sig]

Wash sale rules apply to options trades as well. Incidentally they can also apply to trades of options and the underlying stock for those options, i.e. one leg a stock sale and one an option.

Easiest to just stop trading on the last day of Nov and resume Jan 1st, or the last day of Dec and resume Feb 1st, that way you avoid any issues.

 

[inquiet]

Wash sale rules apply to options trades as well. Incidentally they can also apply to trades of options and the underlying stock for those options, i.e. one leg a stock sale and one an option.

Easiest to just stop trading on the last day of Nov and resume Jan 1st, or the last day of Dec and resume Feb 1st, that way you avoid any issues.

Thanks Sig!