wash sale Qs


wash sale Qs

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Subject

Author

Date

wash sale Qs

Alexei A. Frounze

04-09-2008

Barry Margolin

Alexei A. Froun...

Phil Marti

Seth

Phil Marti

Barry Margolin

removeps-groups...

Posted by Alexei A. Frounze on April 9, 2008, 9:08 am

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Q1: It's about the holding period of the replacement security.
There're several situations possible. Let's denote the purchase of
shares (that will later be sold at a loss) as Xb. Let's denote the
sale at loss as Xs and the other shares that were purchased within the
wash sale period as Yb. Let's denote the wash sale period beginning
and ending by [ and ]. Let's depict this on a timeline (left to right:
past to future):
Case 1:
Xb ... [ ... Yb ... Xs ... ]
Case 2:
Xb ... [... Xs ... Yb ... ]
Case 3:
[... Ya ... Xb ... Xs ... ]
Case 4:
[... Xb ... Yb ... Xs ... ]
Case 5:
[... Xb ... Xs ... Yb ... ]
So, if I need to adjust Y's basis due to the wash sale, I also need to
adjust Y's purchase date (cite from pub550:"If your loss was
disallowed because of the wash sale rules, add the disallowed loss to
the cost of the new stock or securities. 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 begins on the same day
as the holding period of the stock or securities sold.") I basically
want to confirm that Yb may adjust into the past (cases 1,2,4,5) and
into the future (case 3). If it's not how this is done, then how is
it?

Q2: If I adjust (reduce) the basis of some stock due to a wash sale,
then it may happen that for that stock the adjusted basis is less than
the proceeds and so, the loss has just moved to a different place. And
this is asking to apply the wash sale rules again and again and again,
until the loss is fully absorbed by the gains or there's no way to
absorb it entirely (all wash sale rules exhausted) and it stays as a
loss at which point some other rules may come in play (i.e. if it's a
net loss there're limits on how much can be claimed). Did I get it
right that after I've moved a loss to a different place (having
applied the wash sale rules) I need to look again if that newly
created loss may cause further wash sale adjustments?

I've read pub 550 and the following, but it's still unclear what the
new holding period (the date of acquire) should be and if the wash
sale rules apply recursively:
http://fairmark.com/capgain/wash/ws101.htm
http://www.smartmoney.com/tax/capital/index.cfm?story=washrules
http://www.armencomp.com/wash-sales.html
http://www.armencomp.com/wash-sale-example.html

Thanks,
Alex

--
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Posted by Barry Margolin on April 9, 2008, 7:51 pm

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In article

> Q2: If I adjust (reduce) the basis of some stock due to a wash sale,

You never reduce the basis. The disallowed loss is added to the basis
of the replacement shares, so you increase the basis.

> then it may happen that for that stock the adjusted basis is less than

> the proceeds and so, the loss has just moved to a different place. And

If the basis is less than the proceeds, you have a GAIN, not a loss.
What I think you means to say is that it may happen that the increased
basis is greater than the proceeds.

> this is asking to apply the wash sale rules again and again and again,

> until the loss is fully absorbed by the gains or there's no way to

> absorb it entirely (all wash sale rules exhausted) and it stays as a

> loss at which point some other rules may come in play (i.e. if it's a

> net loss there're limits on how much can be claimed). Did I get it

> right that after I've moved a loss to a different place (having

> applied the wash sale rules) I need to look again if that newly

> created loss may cause further wash sale adjustments?

I'm not really sure what you're getting at. You have to make another
sale to have another wash sale.

> I've read pub 550 and the following, but it's still unclear what the

> new holding period (the date of acquire) should be and if the wash

> sale rules apply recursively:

> http://fairmark.com/capgain/wash/ws101.htm

> http://www.smartmoney.com/tax/capital/index.cfm?story=washrules

> http://www.armencomp.com/wash-sales.html

> http://www.armencomp.com/wash-sale-example.html

> Thanks,

> Alex

--
Barry Margolin, barmar@alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Alexei A. Frounze on April 10, 2008, 4:11 am

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> In article

> > Q2: If I adjust (reduce) the basis of some stock due to a wash sale,

> You never reduce the basis. The disallowed loss is added to the basis

> of the replacement shares, so you increase the basis.

> > then it may happen that for that stock the adjusted basis is less than

> > the proceeds and so, the loss has just moved to a different place. And

> If the basis is less than the proceeds, you have a GAIN, not a loss.

> What I think you means to say is that it may happen that the increased

> basis is greater than the proceeds.

Sorry, you're right, I increase the basis, of course.

> > this is asking to apply the wash sale rules again and again and again,

> > until the loss is fully absorbed by the gains or there's no way to

> > absorb it entirely (all wash sale rules exhausted) and it stays as a

> > loss at which point some other rules may come in play (i.e. if it's a

> > net loss there're limits on how much can be claimed). Did I get it

> > right that after I've moved a loss to a different place (having

> > applied the wash sale rules) I need to look again if that newly

> > created loss may cause further wash sale adjustments?

> I'm not really sure what you're getting at. You have to make another

> sale to have another wash sale.

So, if the shares whose basis was adjusted due to the wash sale rules
were sold, then what? If selling them with this adjusted basis results
in a loss (but wouldn't if I had not made the adjustment), then I need
to check whether or not that results in another wash sale? Right?

Alex

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Phil Marti on April 10, 2008, 7:07 am

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"Alexei A. Frounze" wrote:

> So, if the shares whose basis was adjusted due to the wash sale rules

> were sold, then what? If selling them with this adjusted basis results

> in a loss (but wouldn't if I had not made the adjustment), then I need

> to check whether or not that results in another wash sale? Right?

The history of how your basis was established is irrelevant. Any time you
sell for a loss you have to consider the wash sale rule if:

1. You still have a holding in the security after the sale; or

2. You purchase the same security within 30 days after the sale.

Note that "consider" doesn't mean that the rule automatically applies to #1.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Seth on April 10, 2008, 1:37 pm

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>The history of how your basis was established is irrelevant. Any time you

>sell for a loss you have to consider the wash sale rule if:

>1. You still have a holding in the security after the sale; or

Huh? Selling half a position has the same rule as selling all of it.

>2. You purchase the same security within 30 days after the sale.

Shouldn't that be "within 30 days before or after" and remove rule 1?

>Note that "consider" doesn't mean that the rule automatically applies to #1.

Seth

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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