Tax loss harvesting with selling ITM Put options

A

assetalloc

I have the following transactions that got executed on the same day but one after another at different times.

Sold XYZ stock @100 for $30 loss. Sold ITM put on XYZ for $10. Bought XYZ stock $100. Covered put on XYZ for $10.5.

Will final cost basis for XYZ stock held long in my account be $100 or $130?
 
well you sold the stock and bought it back so technically its not a covered put anymore. it would just be a short put. selling short and than buying back cancels out the position. unless you are holding long for some one reason not stated above
 
Doing that on the same day may put you at the mercy of your brokerages intraday wash sale matching rules, which are discretionary I think since I haven’t seeing good guidance on intraday tax lot matching.

My $0.02 worth is that it would work like this, assuming chronological matching:

- ITM put sale triggers wash sale for the first stock sale
- $30 stock loss added to put basis, now $40 instead of $10
- ITM put cover at $10.50 generates loss of $30.50

The unclear part is whether the second stock purchase is substantially identical to the ITM put you just covered at a loss. Wash sales apply to options, but guidance is scant on applying that standard to anything other than trades in the exact same option contract. If it did apply, your second stock lot, purchased within 30 days of the put option loss, would get the $30.50 loss attached and no loss would be realized for the put. If it doesn’t apply, you’d realize the put loss this year and have the stock at the normal cost going forward. Next time use calls, guidance is more clear.

You might find these articles useful.

https://fairmark.com/investment-taxation/capital-gain/wash/
https://www.investmentnews.com/article/20081123/REG/311249981/harvesting-losses-with-options
https://www.nasdaq.com/article/strategies-to-help-clients-around-the-wash-sale-rule-cm541288
http://g2ft.com/images/products/ReFactoring Tax Shelters_G2FinTech.pdf
 
Thanks for suggesting to use call options instead of naked put options.
Can call option be very out of money, e.g. buying only 60 day call option for $0.1 and then let it expire? Will that also trigger wash sale?

So situation becomes:
Sold XYZ stock @100 for $30 loss.
buy $140 call option (60day) for $0.1
Buy XYZ stock @100
Call option expires after 60 days.

Will call trigger wash sale or does it has to be deep ITM (or ITM)?
 
There is a thread on this on here from about a year ago. I also asked my accountant about it and basically it works like this. You can't own the stock for at least 30 days (maybe it's 35...I did 2 months just to be safe.). What I did was sell the stock, short deep ITM put expiring more than 3 months out with enough premium to reduce the risk of early assignment. Eventually the stock was assigned. I stayed in the position and no wash sale.
 
@ajacobson

Are you kidding me?? Why would be a discussion a suicide?? Are you an accountant or tax preparer? Please disclose your profession for fear mongering.

We are discussing how to interpret the IRS codes for active traders. I am an active trader and feel sick of paying huge taxes for gains but not able to offset huge losses this year.

I found this thread very useful. It gave me some more understanding of the tax laws.
 
assetalloc said:
? Please disclose your profession for fear mongering.
More...

read jacobson's prior posts before making an absurd comment.

assetalloc said:
We are discussing how to interpret the IRS codes for active traders. I am an active trader and feel sick of paying huge taxes for gains but not able to offset huge losses this year.
More...
you created your own problem by not making the effort to understand tax law.
 
zdreg said:
read jacobson's prior posts before making an absurd comment.


you created your own problem by not making the effort to understand tax law.
More...
Why are you suddenly bullying and harassing on this thread? Don't start personal attacks and do fear mongering
 
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