Wash Sales Rules

T

Trader2Be

Hi,

I am a part-time daytrader (scalper) and trade the same securities day after day before I go to work (I live in California). How do the wash sales rules affect me? Is there somewhere I can go to look that information up and/or any advice for someone in my situation?

Thank you in advance,

T2B
 
Quote from Trader2Be:

Hi,

I am a part-time daytrader (scalper) and trade the same securities day after day before I go to work (I live in California). How do the wash sales rules affect me? Is there somewhere I can go to look that information up and/or any advice for someone in my situation?

Thank you in advance,

T2B
More...

wash sales only apply to losses. if you had a profit no problem. if you sold a stock for a loss and then bought it back within 30 days and held it in order to shift losses into this year , then your loss would not be allowed.
 
Quote from vhehn:

wash sales only apply to losses. if you had a profit no problem. if you sold a stock for a loss and then bought it back and held it in order to shift losses into this year within 30 days before or jan 1 then your loss would not be allowed.
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Well, I have both wins and losses in the same stocks - the same day, or certainly within 30 days. Does this mean I can't reduce my gains by my losses?

Thank you
 
Yes, that is correct unless you have elected Mark-to-Market last year.

Quote from Trader2Be:

Well, I have both wins and losses in the same stocks - the same day, or certainly within 30 days. Does this mean I can't reduce my gains by my losses?

Thank you
More...
 
Quote from Trader2Be:

Well, I have both wins and losses in the same stocks - the same day, or certainly within 30 days. Does this mean I can't reduce my gains by my losses?

Thank you
More...

if you net out all of your december buys and sales and they show a profit you do not have a wash sale.
 
I don't think that's accurate.

If you sold a stock at a loss and you bought back within 30 days, it is a wash sale. It does not depend if you had a profit at end of the year for all the transactions.

Quote from vhehn:

if you net out all of your december buys and sales and they show a profit you do not have a wash sale.
More...
 
The IRS says:

A wash sale occurs when you sell or otherwise dispose of stock or securities (including a contract or option to acquire or sell stock or securities) at a loss and, within 30 days before or after the sale or disposition, you:
* Buy substantially identical stock or securities,
* Acquire substantially identical stock or securities in a fully taxable trade, or
* Enter into a contract or option to acquire substantially identical stock or securities.

You cannot deduct losses from wash sales .....

The basis of the substantially identical property ... has its cost increased by the disallowed loss. For more details on wash sales, see Pub. 550. http://www.irs.gov



What this means is that you must adjust your basis in the replacement stock.

Let's say on Nov 1 you bought 100 GOOG at 350 and sold it for 340. You lost $ 1,000.

On Nov 2 you buy GOOG at 340 and sell it on Nov 4 for $340. You breakeven on the trade.

What the IRS wants you to do is adjust the price of the second purchase by the $1,000 you lost the previous day. Thus, you increase the cost of the second purchase by $10 to $ 350. So for tax purposes you show buying it at $350 and selling for $340. This means that the $1,000 loss is not recognized until Nov 4.

The Wash Sale Rule was put into effect years ago to stop people from selling a stock at a loss, claiming the loss in late December in the tax year then ending, and repurchasing it in January of the next year.

From a practical viewpoint the only losses the Wash Sale Rule disallows are on stocks held on December 31st that were acquired under the Wash Sale Rule. If you were flat (held no positions) on December 31st (and did not, in January, trade any issue in which you had a loss in December) then there are no losses being deferred.


Jack
 
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