How To Handle Wash Sales/Purchases
Stewart Berman
Purchased 100 shares of security x at $12/share
Four months later sold 100 shares of security x at $6/share (generated
short term capital loss of $600)
Ten days later bought 100 shares of security x at $8/share
Current price of security x is $10/share (unrelized short term capital
gain of $200)
It is my understanding that the last purchase "washes" the previous
sale for tax purposes. The effect should be that there isn't any
recognized short term capital loss and that the basis in the stock is
now $14/share so there should be an unrelized short term capital loss
of $400. The effective purhase date of the shares -- for long/short
term capital -- should be the original date of purchase of the first
100 shares.
How do I change the entries in Quicken to reflect this?
Stu
KBH
basis of the first position is 6 a share.
R. C. White
That's a very clear statement of the short sale problem. Quicken handles it
very well - from an economic point of view. But, not very well at all from
a tax standpoint.
If I were handling this in a good old-fashioned manual set of books - and if
I wanted to keep the books on the "tax method" insofar as possible - then I
would simply make a journal entry to adjust the (first) sale transaction. I
would credit "loss on sale" for the $600 and debit the cost of the new
shares, bringing their basis up to $1,400.
Quicken doesn't let us do this. It puts the loss on the sale into a
Category that is unreachable directly by users; one of those Categories
whose name starts with an underscore: _RlzdGain. We need to move this
disallowed loss to the stock Account, adding it to the new shares' basis.
As a test, I just tried this and got the right result. (Once! Who knows if
it will work consistently, or in more complex situations?) I recorded two
RtrnCap transactions. The first was dated the day before the short sale; it
recorded a $600 RtrnCap for this stock, which reduced the basis to $600 and
reduced the _RlzdGain to $0. Then, I recorded a RtrnCap of $-600 (note the
minus sign) on (or after) the date of purchase of the replacement shares.
Now, the "cost" of the single lot is $1,400 in Portfolio View. When I
record a sale today for $10, I'm asked to select lots and there is only one,
which results in a $200 ST Capital Loss. (In the interest of full
disclosure, I must report that Quicken actually showed the loss to be
$142.86. I don't know why, but it ought to be $200.)
The holding period date is wrong, of course, and will have to be adjusted
manually in TurboTax or whatever method you use to file your return. The
holding period does not start on the date you purchased the original shares.
It starts with the date you purchase the replacement shares, ends with the
date of sale, and then you "tack on" the period during which you held the
original shares. So, 15 days after you purchased the new shares, your
holding period would have been 15 days + the original 4 months, omitting the
10 days during which you did not hold either old or new shares. How's that
for fun? How would you like to have the job of programming that into
Quicken? ;^{
There's no easy way to handle this in Quicken. And, that's my final answer!
As my Sig says, Stu, I retired several years ago. Be sure to check with
your own CPA to see if I remembered the rules correctly and how they may
have changed since I retired.
RC
--
R. C. White, CPA
(Retired - no longer licensed to practice)
San Marcos, TX
r...@corridor.net
"Stewart Berman" <sabe...@chesmatv.com> wrote in message
news:05uu0toml3rhjfakp...@4ax.com...
Stewart Berman
I am thinking about trying the following:
1. Transfer out the original set of shares on the day before the first
sale.
2. Transfer them back at the $6 basis (possibly with the addition of
the original commission -- see question below) with the original
purchase date.
3. Book the $6 sale.
4. Book the $8 purchase
5. Transfer out the shares purchased at $8
6. Transfer them back in with a basis of $14 (plus the commission) and
a purchase date of the original purchase plus 10 days. (i.e. if the
original purchase was on March 10th I would use March 20th)
Do I leave the commissions (buy and sell) with the $6 sale (in which
case there is a slight loss on the sale) or do I tack in onto the
basis of the $14 block?
I think that will keep the cash balance correct and reflect the
correct tax situation.
Does that sound like it will work? I guess I had better make a
complete backup of all of my quicken data files -- outside quicken
with explorer -- before I start this.
Stu
R. C. White
than my suggestion, but if it works for you, go for it. ;<)
Yes, be sure you account for the commissions one way or another. Add the
purchase commission to the cost basis; deduct the sales commission from the
sale price. Your loss on the first sale will be increased by the two-way
commissions on that first lot, and when that disallowed loss gets added to
the basis of your replacement lot it will make your basis for that new lot
larger. Thus, the future sale of the new lot will result in a smaller gain
(hopefully) or larger loss.
As for that $142.86 dollar loss, that has to have been caused either by an
error in Quicken programming or by some hidden gremlin in my data file. I
didn't bother to try to track it down because the transactions were only
hypothetical anyway. I had entered your figures for a new security I called
"Test". After recording everything, my Portfolio view showed exactly what I
expected for my remaining 100 shares of Test with a $1400 basis. But, when
I clicked to see Lots, my single lot of Test showed a different basis.
Actually, this was my second try to see how to record a wash sale sequence.
In my first try, rather than create a new security, I used Adobe Systems,
which was already in my data file because I owned it back in the early '90s.
This test produced results similar to the Test hypothetical; the total loss
from ADBE was $200, but the single lot of ADBE showed some other number
($129.12?). I figured I must have made a mistake, or that something in my
old ADBE data must have caused the anomaly, so I deleted all my new ADBE
entries and tried again with the new security, Test.
This strange result does not affect me, so I don't intend to pursue it
further, but I felt I should mention it. Just be sure to check your numbers
before you sign your tax return.
RC
--
R. C. White, CPA
(Retired - no longer licensed to practice)
San Marcos, TX
r...@corridor.net
"Stewart Berman" <sabe...@chesmatv.com> wrote in message
news:u0h11tc3joji8d35l...@4ax.com...
Lior
1) Create a "Removed" transaction, resetting the share balance to zero.
2) Create a "Added" transaction with the new Cost Avg.
3) Create a "Buy" transaction of 1 share with total of zero
4) Create a "Sale" transaction of the 1 share lot with a "profit" equal to the wash sale amount.
5) Adjust the cash balance in the account. Deduct the "profit" of the 1 share.