Wash Sales in 2012 -- Trading 1 stock only

R

rgfct

1)On February 23, 2012 I made my first trade in SPY for 2012. I day traded 2500 shares and made a modest profit.

2) On Dec 24, 2012 I day traded 2500 shares of SPY and made a modest profit.

3) I did not trade SPY for the entire month of January 2013 (To adhere to the 30 day rule to avoid wash sale problems-- or so I thought.)

4) Between those two days, I traded SPY actively; ending up with a small net gain (given that it is not my day job). There were of course losses during that time period

5) My broker's "Summary of 2012 Proceeds. . ." statement has disallowed a lot of losses. Enough that the resultant tax bill would be truly onerous if it is correct. I had no shares of SPY on January 1 2012 and had no shares of SPY on Dec 31, 2012. Where does the disallowed loss on wash sales go? I thought it went to the last transaction -- but my broker says otherwise.
 
If you want to claim any loss, you have to wait 30 days!

Switch it up next time. Hit the 2x/3x funds. Irs hasn't cracked down on that that I am aware of.

And just switch to ES futures if this is your cash account.

Quote from rgfct:

1)On February 23, 2012 I made my first trade in SPY for 2012. I day traded 2500 shares and made a modest profit.

2) On Dec 24, 2012 I day traded 2500 shares of SPY and made a modest profit.

3) I did not trade SPY for the entire month of January 2013 (To adhere to the 30 day rule to avoid wash sale problems-- or so I thought.)

4) Between those two days, I traded SPY actively; ending up with a small net gain (given that it is not my day job). There were of course losses during that time period

5) My broker's "Summary of 2012 Proceeds. . ." statement has disallowed a lot of losses. Enough that the resultant tax bill would be truly onerous if it is correct. I had no shares of SPY on January 1 2012 and had no shares of SPY on Dec 31, 2012. Where does the disallowed loss on wash sales go? I thought it went to the last transaction -- but my broker says otherwise.
More...
 
Simply put, the broker is doing it wrong, just showing "potential" wash sales. Search for the Robert Green article about this. I don't know of any broker who does it right. With only 1 stock, maybe you can do it manually, or else you need software like tradelog to calculate your real tax liability.
 
Geezus, you guys are dense...

IRS Pub 550, pg 59

A wash sale occurs when you sell or trade
stock or securities at a loss and within 30 days
before or after the sale you:
1.Buy substantially identical stock or securi-
ties,
2.Acquire substantially identical stock or se-
curities in a fully taxable trade,
3.Acquire a contract or option to buy sub-
stantially identical stock or securities, or
4.Acquire substantially identical stock for
your individual retirement account (IRA) or
Roth IRA.
If you sell stock and your spouse or a corpora-
tion you control buys substantially identical
stock, you also have a wash sale.
If your loss was disallowed because of the
wash sale rules, add the disallowed loss to the
cost of the new stock or securities (except in (4)
above). The result is your basis in the new stock
or securities. This adjustment postpones the
loss deduction until the disposition of the new
stock or securities. Your holding period for the
new stock or securities includes the holding pe-
riod of the stock or securities sold

That is the IRS RULE OF LAW. As long as you adjust your cost basis, you can day trade a particular stock and/or a substantially-identical stock all year long, without a waiting period. The key is get flat such stocks during December and only then do you need to adhere to the waiting period into the next year. It is the December 31 line in the sand that causes the problems if you do not get flat in December and then play the waiting game.

There is an example, IRS Pub 550, pg 59

Example 1.
You buy 100 shares of X stock
for $1,000. You sell these shares for $750 and
within 30 days from the sale you buy 100
shares of the same stock for $800. Because
you bought substantially identical stock, you
cannot deduct your loss of $250 on the sale.
However, you add the disallowed loss of $250
to the cost of the new stock, $800, to obtain
your basis in the new stock, which is $1,050.
 
Quote from tiddlywinks:There is an example, IRS Pub 550, pg 59

Example 1.
You buy 100 shares of X stock
for $1,000. You sell these shares for $750 and
within 30 days from the sale you buy 100
shares of the same stock for $800. Because
you bought substantially identical stock, you
cannot deduct your loss of $250 on the sale.
However, you add the disallowed loss of $250
to the cost of the new stock, $800, to obtain
your basis in the new stock, which is $1,050. [/B]
More...

A question for the community regarding this rule. How did you guys enter this into form 8949? Any sample examples of what form 8949 should look like by adding the wash to the cost basis of the new stock, with the appropiate code, would be helpful. The tax industry seems to be clueless about it.

As of now I assume I use code B in column f to adjust the cost basis and add that amount to column g.

The IRS needs to update their forms to accommodate the new wash sale rules.
 
Read the postscript on my last blog on the subject.
http://www.greencompany.com/blog/index.php?postid=178

April 10, 2013 postscript: A securities Form 1099-B often has an amount listed in box 5 "wash sale loss disallowed." For an active trader, it's typical to see a large number in box 5, but don’t be alarmed by that amount. The box 5 amount represents wash sale losses disallowed throughout the entire year. It’s not the amount of 2012 wash sale losses that are deferred to 2013, which amount is generally far less or even zero. This latter amount is what taxpayers are most interested in as it’s the amount that affects their tax liability. The box 5 number may count the same deferred wash sale loss over-and-over again as the wash sale loss is kicked down the road in active trading throughout the year. The same wash sale loss is added to cost basis over-and-over again, too. The box 5 amount is like the below example for "wash sale loss disallowed for the year."
 
Quote from Buzzed:

A question for the community regarding this rule. How did you guys enter this into form 8949? Any sample examples of what form 8949 should look like by adding the wash to the cost basis of the new stock, with the appropiate code, would be helpful. The tax industry seems to be clueless about it.

As of now I assume I use code B in column f to adjust the cost basis and add that amount to column g.

The IRS needs to update their forms to accommodate the new wash sale rules.
More...

Code W for wash sale.
Code B is used for adjustments to basis, such as if you receive a "cumulative adjustment to basis" from a k-1 for trading a commodity ETF organized as a partnership where you are allocated your share of the PTP (publicly traded partnership).
It's possible to have both a Code B and Code W for one transaction.

Refer to page 5 and 6 of form 8949 instructions.
http://www.irs.gov/pub/irs-pdf/i8949.pdf
 
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