Wash Sale query

MZB

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Jan 10, 2012, 5:48:04 AM1/10/12

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Can someone help me with this question regarding the wash sale:

1) Scenario #1 :

Suppose I buy XYZ on 12/5/11 and sell it at a loss on 12/10/ 11.

I then buy XYZ on 12/12/11. My understanding is this is a wash sale and
I can't deduct the loss, but I can add this amount to my cost basis.

If I sell XYZ on 12/20/11, am I now ok to log both sales for 2011? I
assume not. I assume I have to wait 30 days beyond 12/20/11 but I can
claim it when I do my 2012 taxes. Is this correct?

2) Scenario #2:

I buy XYZ on 11/20/11 and sell it at a profit 10 days later.
I buy XYZ on 12/7/11 and sell it at a loss 10 days later

I understand that this is still a wash sale, since the period is +/- 30
days from the loss. So, how do I recapture that loss?

Mel

Arthur Kamlet

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Jan 10, 2012, 12:24:06 PM1/10/12

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In article <jeh51g$oik$1...@dont-email.me>, MZB <m...@noway.prudigy.net> wrote:
>Can someone help me with this question regarding the wash sale:
>
>1) Scenario #1 :
>
>Suppose I buy XYZ on 12/5/11 and sell it at a loss on 12/10/ 11.
>
>I then buy XYZ on 12/12/11. My understanding is this is a wash sale and
>I can't deduct the loss, but I can add this amount to my cost basis.

Yes. The replacement shares you still hold has their basis increased
by the amount of disallowed loss.

>If I sell XYZ on 12/20/11, am I now ok to log both sales for 2011? I
>assume not. I assume I have to wait 30 days beyond 12/20/11 but I can
>claim it when I do my 2012 taxes. Is this correct?

You will know by tax filing time if you bought replacement shares
or not.

Technically you ae still to report the wash sale as a wash sale,
though some taxpayers will ignore the wash sale reporting and
their bottom line will end up being the same.

>2) Scenario #2:
>
>I buy XYZ on 11/20/11 and sell it at a profit 10 days later.
>I buy XYZ on 12/7/11 and sell it at a loss 10 days later
>
>I understand that this is still a wash sale, since the period is +/- 30
>days from the loss. So, how do I recapture that loss?

What you are missing and what the IRS does a poor job of explaining
is, since there are no replacement shares at the time of the
12/7 buy, there's no wash sale.

But you can search the IRS pubs and the tax code and not see the
term "replacement shares" even though it belongs there.
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

MZB

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Jan 10, 2012, 1:58:37 PM1/10/12

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Art:

Thanks for responding (and you'll notice I refrained by cross-posting
this to the moderated group) but I am still confused by your answer.

In scenario #1, I have already bought and sold the replacement shares,
but they were sold on...OH, I SCREWED UP THE QUESTION. I MISPOKE.

Suppose those replacement shares were sold on 12/22/11.

Now, can I just claim the trades for 2011. In other words, have I
cleared the wash sale problem. Or do I have to disallow the loss and
reclaim it on my 2012 return (Let's assume I don't rebuy those or
similar shares again).?

Another way of putting it: If I have a wash sale, but unload the
replacement shares before 12/31/11, can I claim all the trades in 2011.
It's kind of like scenario #2. If there are no replacement shares held
at the end of 2011, is there no wash sale?

Mel

Arthur Kamlet

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Jan 10, 2012, 6:17:01 PM1/10/12

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I might not have been clear the first time. I would very much prefer that
you post to the moderated group and not here. The signal/noise ratio
is much higher there.

And you get a better quality of response for many tax professionals.

>In scenario #1, I have already bought and sold the replacement shares,
>but they were sold on...OH, I SCREWED UP THE QUESTION. I MISPOKE.
>
>Suppose those replacement shares were sold on 12/22/11.
>
>Now, can I just claim the trades for 2011. In other words, have I
>cleared the wash sale problem. Or do I have to disallow the loss and
>reclaim it on my 2012 return (Let's assume I don't rebuy those or
>similar shares again).?

A major reason for the wash sale rules is to prevent you from
claiming a loss in this year when your actions move the risk out
to next year. So follow the wash sale reporting when you have a
wash sale.

>Another way of putting it: If I have a wash sale, but unload the
>replacement shares before 12/31/11, can I claim all the trades in 2011.
>It's kind of like scenario #2. If there are no replacement shares held
>at the end of 2011, is there no wash sale?

And you do not buy replacement shares in early 2012? That has to be
true as well. If so, you can probably get away with ignoring the
wash rules but the rules say to still report as a wash sale.