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Tax Loss Selling Rule?
- Thread starter dsq
- Start date
Yes, you are correct. But you can buy it back before 30 days and just adjust the cost basis of the new purchase as follows..
Example: Some time ago you bought 80 shares of XYZ at $50. The stock has declined to $30, and you sell it to take the loss deduction. But then you see some good news on XYZ and buy it back for $32, less than 31 days after the sale.
You can't deduct your loss of $20 per share. But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share: the $32 you paid, plus the $20 wash sale adjustment. In other words, you're treated as if you bought the shares for $52. If you end up selling them for $55, you'll only report $3 per share of gain. And if you sell them for $32 (the same price you paid to buy them), you'll report a loss of $20 per share.
Because of this basis adjustment, a wash sale usually isn't a disaster. In most cases, it simply means you'll get the same tax benefit at a later time. If you receive the benefit later in the same year, the wash sale may have no effect at all on your taxes.
Example: Some time ago you bought 80 shares of XYZ at $50. The stock has declined to $30, and you sell it to take the loss deduction. But then you see some good news on XYZ and buy it back for $32, less than 31 days after the sale.
You can't deduct your loss of $20 per share. But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share: the $32 you paid, plus the $20 wash sale adjustment. In other words, you're treated as if you bought the shares for $52. If you end up selling them for $55, you'll only report $3 per share of gain. And if you sell them for $32 (the same price you paid to buy them), you'll report a loss of $20 per share.
Because of this basis adjustment, a wash sale usually isn't a disaster. In most cases, it simply means you'll get the same tax benefit at a later time. If you receive the benefit later in the same year, the wash sale may have no effect at all on your taxes.
Quote from dsq:
If you sell your stock for a loss on Dec 30 you are not allowed to buy it back for 30 days -if you do so you will not be allowed to use the loss as a write-off....This is correct today?
How about during the year one day you sell stock XYZ for a small $500 profit and one week later you enter a new trade on the same XYZ stock and eventually lose $20,500 on it. (Both during the same year.)
Does the wash sale rule require you to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though you actually lost $20,000 on the two trades combined?
Does the wash sale rule require you to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though you actually lost $20,000 on the two trades combined?
Why are u reporting an income ($20,500) on a loss?
Quote from street carp:
How about during the year one day you sell stock XYZ for a small $500 profit and one week later you enter a new trade on the same XYZ stock and eventually lose $20,500 on it. (Both during the same year.)
Does the wash sale rule require you to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though you actually lost $20,000 on the two trades combined?
Quote from Tracy McGreedy:
Why are u reporting an income ($20,500) on a loss?
That was poor wording on my part, sorry. Let me put it this way: If I am not allowed to deduct this "wash sale" loss then a $80k overall profit for the year becomes a $100.5k profit I'd owe taxes on. In essence I'd be paying tax on a phantom "gain" of $20,500 if I were not able to deduct it.
Hopefully this clears up my question. I have asked about the same question in a separate thread under "Career Traders" so you don't have to respond to me here.
Thanks
After the last loss, did u buy the stock back?
Quote from street carp:
That was poor wording on my part, sorry. Let me put it this way: If I am not allowed to deduct this "wash sale" loss then a $80k overall profit for the year becomes a $100.5k profit I'd owe taxes on. In essence I'd be paying tax on a phantom "gain" of $20,500 if I were not able to deduct it.
Hopefully this clears up my question. I have asked about the same question in a separate thread under "Career Traders" so you don't have to respond to me here.
Thanks