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Old 03-13-2010, 09:49 PM   #1
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Default Tax Question (wash sales)

Well, a productive day. Done with schedules B, C, and SE, and the 1040 itself is just awaiting some input from schedule D. And that's where I'm getting hung up. Historically, I've taken a much longer-term outlook than I did during a certain portion of 2009, and thus never had to deal with the Wash Sale rule.

Assume that on two consecutive days, I both bought and sold a certain security.

On day 1, I sold the security at a loss. Since I subsequently repurchased it on day 1, day 1 is a wash sale, and the amount of that loss carries over to the basis for day 2.

On day 2, I sell either at a loss, or at a gain too small to offset the increased basis resulting from day 1.

Is the net result of this activity allowable as a loss?

Pub 550 isn't helping much here. It says that a sale is a wash if any purchase of an identical security took place within 30 days before or after the sale. Well, the purchase on day 1 took place within 30 days before the sale on day 2.

Any tax pros out there know the answer? I'm not looking at a huge amount of money here, but based on the fact that I'm claiming roughly a third of my gross income as business expenses on schedule SE (which I know is going to merit, shall we say, increased scrutiny) I want to make damn sure that everything else about this return is perfect.
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Old 03-14-2010, 12:35 PM   #2
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Does this help:

Taken from Wash Sales 101

Basis Adjustment

The basis adjustment is important: it preserves the benefit of the disallowed loss. You'll receive that benefit on a future sale of the replacement stock.

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.

I did a lot of trading this past year but I'm letting my tax guy handle it.

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