TLH question

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

TLH question

Post by ebs0303 »

I sold VTSAX for VFIAX to TLH with the recent market downturn. The way I understand it is I would have to sell any VTSAX bought in the last 30 days (all of which are down too, so part of the TLH anyway), and not buy any more VTSAX for 30 days. I've shut off my automatic investments into VTSAX for the next 30 days.

To avoid a wash sale, does above apply to all my other non-brokerage accounts as well that hold VTSAX? I have a Roth IRA, Inherited IRA, Inherited Roth IRA. What about 401ks, 457bs, etc? Would it apply to custodial accounts I hold for my kids?
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

You cannot buy any substantially identical securities for the whole 61 day period. In at least your taxable and IRA accounts. But why test it?
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

I just wanted to know if I needed to sell off any recently purchased VTSAX in those other accounts to avoid the wash sale.

Are you making a distinction between IRAs, inherited IRAs and 401ks? FWIW, turning off auto investments or selling a recent position in a TSM index fund in my 401k (with a different brokerage house than Vanguard) would be more difficult, making me wonder if I should just cancel the VTSAX sale.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: TLH question

Post by retired@50 »

ebs0303 wrote: Thu Jan 20, 2022 7:48 pm I just wanted to know if I needed to sell off any recently purchased VTSAX in those other accounts to avoid the wash sale.

Are you making a distinction between IRAs, inherited IRAs and 401ks? FWIW, turning off auto investments or selling a recent position in a TSM index fund in my 401k (with a different brokerage house than Vanguard) would be more difficult, making me wonder if I should just cancel the VTSAX sale.
The wash sale rule definitely includes IRAs (of all types), but may or may not include 401(k)s depending on your read of the tax code.

See link: https://www.bogleheads.org/wiki/Wash_sale

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

ebs0303 wrote: Thu Jan 20, 2022 7:48 pm I just wanted to know if I needed to sell off any recently purchased VTSAX in those other accounts to avoid the wash sale.

Are you making a distinction between IRAs, inherited IRAs and 401ks? FWIW, turning off auto investments or selling a recent position in a TSM index fund in my 401k (with a different brokerage house than Vanguard) would be more difficult, making me wonder if I should just cancel the VTSAX sale.
The IRS has never exempted any type of account from the wash sale rule. The wash sale law itself doesn't mention any types of accounts and simply refers to the taxpayer acquiring stocks or securities.

A wash sale would not apply to accounts owned by your kids. However, if you intentionally try to evade the wash sale rule by using your kids' accounts, there is another rule called the related party rule that is more onerous than the wash sale rule. (Note that a 529 is owned by the account owner and not the beneficiary)

Also note that in most (all?) tax-advantaged accounts it is not possible to sell specific shares, and many brokerages default to FIFO (first in first out). So, to get the latest shares you have to sell all.

All this is why it is advised to use different investments in your taxable accounts compared to your tax-advantaged accounts.
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

Thanks for the explanation. As I hear more, definitely sounds like its not worth the hassle in my situation.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

ebs0303 wrote: Thu Jan 20, 2022 7:48 pm I just wanted to know if I needed to sell off any recently purchased VTSAX in those other accounts to avoid the wash sale.

Are you making a distinction between IRAs, inherited IRAs and 401ks? FWIW, turning off auto investments or selling a recent position in a TSM index fund in my 401k (with a different brokerage house than Vanguard) would be more difficult, making me wonder if I should just cancel the VTSAX sale.
Selling securities purchased within the sixty one day period does not avoid the wash sale.
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

Lee_WSP wrote: Fri Jan 21, 2022 1:38 am
ebs0303 wrote: Thu Jan 20, 2022 7:48 pm I just wanted to know if I needed to sell off any recently purchased VTSAX in those other accounts to avoid the wash sale.

Are you making a distinction between IRAs, inherited IRAs and 401ks? FWIW, turning off auto investments or selling a recent position in a TSM index fund in my 401k (with a different brokerage house than Vanguard) would be more difficult, making me wonder if I should just cancel the VTSAX sale.
Selling securities purchased within the sixty one day period does not avoid the wash sale.
Not sure I understand then - so if you have purchased say VTSAX in an IRA 2 weeks before selling VTSAX for VFIAX in a brokerage account, there is no way you can avoid a wash sale, even if you sell what you purchased in the IRA (or I guess the same amount of shares you purchased)? Is that because there is no clear way to specifically sell those exact shares in the IRA? Or another reason?
UpperNwGuy
Posts: 9475
Joined: Sun Oct 08, 2017 7:16 pm

Re: TLH question

Post by UpperNwGuy »

If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: TLH question

Post by livesoft »

ebs0303 wrote: Fri Jan 21, 2022 7:30 am Or another reason?
Well, the main reason is that is it specifically flagged as a wash sale by the IRS. See IRS Publication 550 and IRS Revenue Ruling 2008-5.
https://www.irs.gov/pub/irs-drop/rr-08-05.pdf
The IRS hasn't been clear about many things where Wash Sales are concerned, but this is one thing that the IRS made very clear.

I wonder if all these people responding about wash sales have ever actually filed a Form 1040 where they actually reported a wash sale?
Wiki This signature message sponsored by sscritic: Learn to fish.
BrokerageZelda
Posts: 463
Joined: Sat Apr 10, 2021 10:39 am

Re: TLH question

Post by BrokerageZelda »

Correct me if I'm wrong, but here is how I think it works -

If you have shares in taxable purchased less than 30 days before before the capital loss, but sell them before you realize a capital loss on newer shares in taxable, the loss on the newer shares is washed into the earlier shares (step 1) but then also immediately turns back into a realized capital loss on your books because those earlier shares have also been sold (step 2). You 'rewrite history' but the numbers still line up.

If you have shares in an IRA purchased less than 30 days before the capital loss, but sell them before you realize a capital loss on newer shares in taxable, the loss on the newer shares is washed into the earlier shares (step 1) and then immediately disallowed because the earlier shares are in an IRA and realized losses don't count (step 2). You 'rewrite history' such that the numbers come out worse for you.
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

So it seems like the only feasible way to do this is never buy additional shares of VTSAX in an IRA or other non-brokerage account moving forward to be able to sell VTSAX in the brokerage account or convert all VTSAX to VFIAX within all non-brokerage accounts. This then retains the ability to reinvest and increase those positions (in VFIAX) as well as sell VTSAX in brokerage for capital loss/TLH purposes. Is that correct?
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
The way I'm interpreting this (based on this thread) is that if those shares are in a retirement account, there is no way to specifically designate the more recently purchased shares for sale. As opposed to a brokerage account where you can actually see which shares have gained/lost and thus designate specific shares for sale to TLH.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

ebs0303 wrote: Fri Jan 21, 2022 9:36 am The way I'm interpreting this (based on this thread) is that if those shares are in a retirement account, there is no way to specifically designate the more recently purchased shares for sale. As opposed to a brokerage account where you can actually see which shares have gained/lost and thus designate specific shares for sale to TLH.
Yes, I realize the IRA other account involvement complicates matters. But I'm attempting to separate that part of it out first, because it's not clear what is being said.

However, if the shares identified in that simple example are the only ones owned, I don't even think involving an IRA would matter. I don't see any wash sales in the above two examples, even if the 50 share tax lot were purchased in an IRA, and the 100 share tax lot is in taxable. They're not replacement shares because they're gone by the time the loss on the 100 share tax lot is realized. And the investor has no stake left in the asset whatsoever upon the sale of the 100 share tax lot. So it's impossible for there to be an abuse of the wash sale rule.

At least that's consistent with the guidance that has been offered here for many years...
Last edited by iceport on Fri Jan 21, 2022 10:00 am, edited 1 time in total.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: TLH question

Post by retired@50 »

ebs0303 wrote: Fri Jan 21, 2022 9:36 am
iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
The way I'm interpreting this (based on this thread) is that if those shares are in a retirement account, there is no way to specifically designate the more recently purchased shares for sale. As opposed to a brokerage account where you can actually see which shares have gained/lost and thus designate specific shares for sale to TLH.
To get around the red phrase above, you could just sell the entire position in the retirement account and buy a TLH partner fund if one is available. I suspect this is why some people advise investors not to hold the exact same funds in all accounts.

Example: If your 401k has an S&P 500 fund, then hold a total stock market fund in your taxable account... When you have to TLH in taxable, swap the total market fund for a Large Cap Index or a different total market fund that tracks a different index.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
They apply the step transaction doctrine or related transaction doctrine and lump all the sales and purchases together. Your losses are disallowed, your losses do not offset the gains, the basis of remaining shares are adjusted.

That is the latest position the IRS has taken.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

Lee_WSP wrote: Fri Jan 21, 2022 10:38 am
iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
They apply the step transaction doctrine or related transaction doctrine and lump all the sales and purchases together. Your losses are disallowed, your losses do not offset the gains, the basis of remaining shares are adjusted.

That is the latest position the IRS has taken.
Could you identify the remaining shares for me?

Thanks!
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

iceport wrote: Fri Jan 21, 2022 10:42 am
Lee_WSP wrote: Fri Jan 21, 2022 10:38 am
iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
They apply the step transaction doctrine or related transaction doctrine and lump all the sales and purchases together. Your losses are disallowed, your losses do not offset the gains, the basis of remaining shares are adjusted.

That is the latest position the IRS has taken.
Could you identify the remaining shares for me?

Thanks!
I didn’t actually work through it, just gave you the rule.

50 shares are washed, since no shares are held, no basis is adjusted.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

Lee_WSP wrote: Fri Jan 21, 2022 10:48 am
iceport wrote: Fri Jan 21, 2022 10:42 am
Lee_WSP wrote: Fri Jan 21, 2022 10:38 am
iceport wrote: Fri Jan 21, 2022 9:21 am
UpperNwGuy wrote: Fri Jan 21, 2022 7:34 am If you purchase the shares within the 61 day window, you can't unwind the purchase by selling those shares.
I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
They apply the step transaction doctrine or related transaction doctrine and lump all the sales and purchases together. Your losses are disallowed, your losses do not offset the gains, the basis of remaining shares are adjusted.

That is the latest position the IRS has taken.
Could you identify the remaining shares for me?

Thanks!
I didn’t actually work through it, just gave you the rule.

50 shares are washed, since no shares are held, no basis is adjusted.
That makes no sense to me, at all. Which example are you referring to, the one with two sales or one?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

iceport wrote: Fri Jan 21, 2022 10:57 am
Lee_WSP wrote: Fri Jan 21, 2022 10:48 am
iceport wrote: Fri Jan 21, 2022 10:42 am
Lee_WSP wrote: Fri Jan 21, 2022 10:38 am
iceport wrote: Fri Jan 21, 2022 9:21 am

I'm not following this statement. Could we consider a really simple example? Assume these are the only shares owned.

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/14/22: Sell the 50 shares bought 1/10/22 @ $5/sh.
1/17/22: Sell the 100 shares bought 6/15/21 @ $4/sh.

Do you consider either of these two sales to be a wash sale?


Alternatively, if all 150 shares were sold on 1/17/22 @ $4/sh., would that be a wash sale?

6/15/21: Buy 100 shares @ $10/sh.
1/10/22: Buy 50 shares @ $6/sh.
1/17/22: Sell all 150 shares @ $4/sh.
They apply the step transaction doctrine or related transaction doctrine and lump all the sales and purchases together. Your losses are disallowed, your losses do not offset the gains, the basis of remaining shares are adjusted.

That is the latest position the IRS has taken.
Could you identify the remaining shares for me?

Thanks!
I didn’t actually work through it, just gave you the rule.

50 shares are washed, since no shares are held, no basis is adjusted.
That makes no sense to me, at all. Which example are you referring to, the one with two sales or one?
In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

Lee_WSP wrote: Fri Jan 21, 2022 11:03 am In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
So which shares get their cost basis adjusted? If there are no shares left to add the losses to, are you saying there is a permanently disallowed loss somehow? Even if it all happens in a taxable account?

How can that possibly be? This analysis is really off-base... :oops:
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

iceport wrote: Fri Jan 21, 2022 11:13 am
Lee_WSP wrote: Fri Jan 21, 2022 11:03 am In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
So which shares get their cost basis adjusted? If there are no shares left to add the losses to, are you saying there is a permanently disallowed loss somehow? Even if it all happens in a taxable account?

How can that possibly be? This analysis is really off-base... :oops:
Yes. That is exactly what happens in the rulings dealing with this from the predecessor to 1091.

Section d requires held shares at the end according to the services position.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: TLH question

Post by iceport »

Lee_WSP wrote: Fri Jan 21, 2022 11:14 am
iceport wrote: Fri Jan 21, 2022 11:13 am
Lee_WSP wrote: Fri Jan 21, 2022 11:03 am In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
So which shares get their cost basis adjusted? If there are no shares left to add the losses to, are you saying there is a permanently disallowed loss somehow? Even if it all happens in a taxable account?

How can that possibly be? This analysis is really off-base... :oops:
Yes. That is exactly what happens in the rulings dealing with this from the predecessor to 1091.

Section d requires held shares at the end according to the services position.
You're wrong, Lee.

If it all happened in a taxable account, and you end up with no shares left, then however you work the process — even if you find a way to introduce an intermediate irrelevant wash sale — all losses would be realized and allowed by the time all shares are sold. If you come to a different conclusion, you're making a mistake somewhere.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
BrokerageZelda
Posts: 463
Joined: Sat Apr 10, 2021 10:39 am

Re: TLH question

Post by BrokerageZelda »

iceport wrote: Fri Jan 21, 2022 11:21 am
Lee_WSP wrote: Fri Jan 21, 2022 11:14 am
iceport wrote: Fri Jan 21, 2022 11:13 am
Lee_WSP wrote: Fri Jan 21, 2022 11:03 am In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
So which shares get their cost basis adjusted? If there are no shares left to add the losses to, are you saying there is a permanently disallowed loss somehow? Even if it all happens in a taxable account?

How can that possibly be? This analysis is really off-base... :oops:
Yes. That is exactly what happens in the rulings dealing with this from the predecessor to 1091.

Section d requires held shares at the end according to the services position.
You're wrong, Lee.

If it all happened in a taxable account, and you end up with no shares left, then however you work the process — even if you find a way to introduce an intermediate irrelevant wash sale — all losses would be realized and allowed by the time all shares are sold. If you come to a different conclusion, you're making a mistake somewhere.
My take:

For the second example: The 6/15/21 shares are outside the 30 day window, so they're not adjusted. The 1/10/22 shares are within the window and are subject to adjustment.

The 100 older shares keep their cost basis of $10 before and after the wash.
The 50 newer shares start with a cost basis of $6 before the wash.

Selling all 150 shares on 1/17/22 does two things:
The 100 older shares aren't affected by the wash and you still book a capital loss of $600.
The 50 newer shares are considered "replacement shares" because they're within the 30 day backward window.
50 shares out of the lot of 150 sold on 1/17/22 have their total loss of $100 disallowed, or "washed", because they can be matched with "replacement shares". The wash means that the official loss on those 50 shares is considered $0 on 1/17/22.
The "wash" reassigns the $100 of cost basis to the lot purchased on 1/10/22, so they officially have a new cost basis of $4 per share.

Before the wash:
100 shares bought at $10
50 shares bought at $6
150 shares sold at $4

After the wash:
100 shares bought at $10
50 shares bought at $4
150 shares sold at $4

That's why it's a "wash sale" - any disallowed capital losses become a wash, because instead of realizing a capital loss, you break even as long as everything is taxable.

If the 50 replacement shares were in an IRA:

Before the wash:
100 shares in taxable bought at $10
plus 50 unrelated pre-existing shares in taxable also bought at $10
50 shares bought in IRA for $6 <-- replacement shares
100 shares sold in taxable at $4
50 shares sold in taxable at $4 <-- washed shares
$600 capital loss

After the wash:
150 shares in taxable bought at $10
50 nonexistent shares in The Land of Theoretical Math bought at $4 (this is where the loss goes)
50 shares bought in IRA for $12 <-- adjusted basis up
100 shares sold in taxable at $4
50 nonexistent shares in The Land of Theoretical Math sold at $4
$400 capital loss

The nonexistent shares are shown here because shares can't be in and out of the IRA at the same time, but for IRS purposes they are treated that way.

(edit: Sorry, had to make a few edits but I think the numbers line up now.)

You sold shares in taxable, but the IRS washes the cost basis into the IRA where you can't harvest capital losses. You lose the potential harvest permanently. That's why it hurts you if IRA shares are in the wash sale window, even if you already sold them.
Last edited by BrokerageZelda on Fri Jan 21, 2022 12:01 pm, edited 4 times in total.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

iceport wrote: Fri Jan 21, 2022 11:21 am
Lee_WSP wrote: Fri Jan 21, 2022 11:14 am
iceport wrote: Fri Jan 21, 2022 11:13 am
Lee_WSP wrote: Fri Jan 21, 2022 11:03 am In both examples, you have a sale for a loss and a purchase within the 61 day period. The fifty shares cannot wash themselves, but in both cases, you sold other shares which are washed by the purchase.

In the both example, you don't have a wash until all lots are sold.
So which shares get their cost basis adjusted? If there are no shares left to add the losses to, are you saying there is a permanently disallowed loss somehow? Even if it all happens in a taxable account?

How can that possibly be? This analysis is really off-base... :oops:
Yes. That is exactly what happens in the rulings dealing with this from the predecessor to 1091.

Section d requires held shares at the end according to the services position.
You're wrong, Lee.

If it all happened in a taxable account, and you end up with no shares left, then however you work the process — even if you find a way to introduce an intermediate irrelevant wash sale — all losses would be realized and allowed by the time all shares are sold. If you come to a different conclusion, you're making a mistake somewhere.
That's their position. It makes sense. Adjusting the basis of sold shares allows the loss.

You have not cited any source to support your position.

I mean, you're certainly welcome to speculate on their current thinking. Either view is plausible, but their history suggests a disallowance.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 1:32 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
While that's how it should be, no binding authority states this.

The section d step up is the only means to get back the disallowed loss.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: TLH question

Post by anon_investor »

Lee_WSP wrote: Fri Jan 21, 2022 1:34 pm
rkhusky wrote: Fri Jan 21, 2022 1:32 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
While that's how it should be, no binding authority states this.

The section d step up is the only means to get back the disallowed loss.
Doesn't Fidelity just report this as a wash sale and increase decrease the cost basis of the lower shares, and since they are all covered shares all the numbers net out properly, so when you feed the 1099 into Turbo Tax it just works?
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

anon_investor wrote: Fri Jan 21, 2022 1:40 pm Doesn't Fidelity just report this as a wash sale and increase decrease the cost basis of the lower shares, and since they are all covered shares all the numbers net out properly, so when you feed the 1099 into Turbo Tax it just works?
Yes, brokerages will do it the sensible way.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 1:34 pm
rkhusky wrote: Fri Jan 21, 2022 1:32 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
While that's how it should be, no binding authority states this.

The section d step up is the only means to get back the disallowed loss.
If you can provide a worked out example from the IRS or another reputable source that follows your interpretation, your argument might have more credibility.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

anon_investor wrote: Fri Jan 21, 2022 1:40 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:34 pm
rkhusky wrote: Fri Jan 21, 2022 1:32 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
While that's how it should be, no binding authority states this.

The section d step up is the only means to get back the disallowed loss.
Doesn't Fidelity just report this as a wash sale and increase decrease the cost basis of the lower shares, and since they are all covered shares all the numbers net out properly, so when you feed the 1099 into Turbo Tax it just works?
Yes. Also the service has not cared and was dealt a blow recently by the supreme Court, so we're not going to get clarification from them anytime soon.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 1:49 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:34 pm
rkhusky wrote: Fri Jan 21, 2022 1:32 pm
Lee_WSP wrote: Fri Jan 21, 2022 1:14 pm
rkhusky wrote: Fri Jan 21, 2022 12:55 pm Assuming all in taxable.
The first case has no wash sale, claimable loss of $700.
The second case has an irrelevant wash sale with FIFO, and results in a claimable $700 loss.
If we're allowed to choose which shares are washed, I would agree that this outcome is achievable. However, there is no authority to suggest this.

Furthermore, the services loves to and probably will apply the step transaction doctrine to combine them all in a single transaction. This is what they've done in previous rulings and cases.
The results have to be the same because a wash sale involving only taxable accounts only defers the claimable loss. Once all shares are sold the taxpayer can claim the full loss.
While that's how it should be, no binding authority states this.

The section d step up is the only means to get back the disallowed loss.
If you can provide a worked out example from the IRS or another reputable source that follows your interpretation, your argument might have more credibility.
RR 08-05 deals with section d indirectly. The basis in the IRA account is not adjusted. Not perfectly clear, as it's shares held in an IRA.

The following rulings deal with the basis adjustment issue by disallowing the loss, not allowing an offset, and not adjusting the basis. I have not found any more recent rulings dealing with section d. Based on these rulings and without any other authority forcing the IRS to adjust the basis of sold shares, we cannot assume that section d will always be applied.
Other aspects of the wash sale rules are more mechanical in nature. Thus, if a taxpayer sells multiple blocks of stock or securities and, within the wash sale period, purchases a number of replacement shares equal to the number contained within a block, the loss disallowed is the earliest sustained Reg. Sec. 1.1091-1(b). If such an identification cannot be readily made, the loss affected by Sec. 1091 is the loss associated with the block acquired earliest.

Sec. 1091 eschews netting. Accordingly, if a gain block and a loss block are sold, and a prohibited reacquisition occurs, the gain is fully recognized and the loss is disallowed (Rev. Rul. 70-231). As is the case in Sec. 356(c) or Sec. 1491, the wash sale rules bifurcate a plan or arrangement and surgically ferrets out losses for disallowances (Rev. Ruls. 68-23 and 71-433).
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 2:04 pm RR 08-05 deals with section d indirectly. The basis in the IRA account is not adjusted. Not perfectly clear, as it's shares held in an IRA.
I think RR 08-05 was important because it permanently disallowed a loss because the replacement shares were in an IRA. Up to that point all wash sale losses were simply deferred until the replacement shares were sold. That difference is probably why many people thought that wash sales would not be triggered by purchases in tax-advantaged accounts - because there is no basis to adjust. Presumably the IRS could have started requiring basis to be tracked in tax-advantaged accounts, but chose to permanently disallow the loss instead. I have never heard of losses being permanently disallowed due to a wash sale triggered by a purchase in a taxable account (the related person rule does permanently disallow losses - there is no basis adjustment with that rule).
Lee_WSP wrote: Fri Jan 21, 2022 2:04 pm The following rulings deal with the basis adjustment issue by disallowing the loss, not allowing an offset, and not adjusting the basis. I have not found any more recent rulings dealing with section d. Based on these rulings and without any other authority forcing the IRS to adjust the basis of sold shares, we cannot assume that section d will always be applied.
Other aspects of the wash sale rules are more mechanical in nature. Thus, if a taxpayer sells multiple blocks of stock or securities and, within the wash sale period, purchases a number of replacement shares equal to the number contained within a block, the loss disallowed is the earliest sustained Reg. Sec. 1.1091-1(b). If such an identification cannot be readily made, the loss affected by Sec. 1091 is the loss associated with the block acquired earliest.

Sec. 1091 eschews netting. Accordingly, if a gain block and a loss block are sold, and a prohibited reacquisition occurs, the gain is fully recognized and the loss is disallowed (Rev. Rul. 70-231). As is the case in Sec. 356(c) or Sec. 1491, the wash sale rules bifurcate a plan or arrangement and surgically ferrets out losses for disallowances (Rev. Ruls. 68-23 and 71-433).
Disallowing netting is simply saying that each lot must be considered separately. You can't join two lots together and treat them as one lot. This is also why all the shares in a lot must have the same price. Otherwise you could sell a lot where some shares have gains and some have losses.

Neither of these examples addresses the question of whether shares previously sold can cause a wash sale in a subsequent sale for a loss.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 2:39 pm
Lee_WSP wrote: Fri Jan 21, 2022 2:04 pm RR 08-05 deals with section d indirectly. The basis in the IRA account is not adjusted. Not perfectly clear, as it's shares held in an IRA.
I think RR 08-05 was important because it permanently disallowed a loss because the replacement shares were in an IRA. Up to that point all wash sale losses were simply deferred until the replacement shares were sold. That difference is probably why many people thought that wash sales would not be triggered by purchases in tax-advantaged accounts - because there is no basis to adjust. Presumably the IRS could have started requiring basis to be tracked in tax-advantaged accounts, but chose to permanently disallow the loss instead. I have never heard of losses being permanently disallowed due to a wash sale triggered by a purchase in a taxable account (the related person rule does permanently disallow losses - there is no basis adjustment with that rule).
Lee_WSP wrote: Fri Jan 21, 2022 2:04 pm The following rulings deal with the basis adjustment issue by disallowing the loss, not allowing an offset, and not adjusting the basis. I have not found any more recent rulings dealing with section d. Based on these rulings and without any other authority forcing the IRS to adjust the basis of sold shares, we cannot assume that section d will always be applied.
Other aspects of the wash sale rules are more mechanical in nature. Thus, if a taxpayer sells multiple blocks of stock or securities and, within the wash sale period, purchases a number of replacement shares equal to the number contained within a block, the loss disallowed is the earliest sustained Reg. Sec. 1.1091-1(b). If such an identification cannot be readily made, the loss affected by Sec. 1091 is the loss associated with the block acquired earliest.

Sec. 1091 eschews netting. Accordingly, if a gain block and a loss block are sold, and a prohibited reacquisition occurs, the gain is fully recognized and the loss is disallowed (Rev. Rul. 70-231). As is the case in Sec. 356(c) or Sec. 1491, the wash sale rules bifurcate a plan or arrangement and surgically ferrets out losses for disallowances (Rev. Ruls. 68-23 and 71-433).
Disallowing netting is simply saying that each lot must be considered separately. You can't join two lots together and treat them as one lot. This is also why all the shares in a lot must have the same price. Otherwise you could sell a lot where some shares have gains and some have losses.

Neither of these examples addresses the question of whether shares previously sold can cause a wash sale in a subsequent sale for a loss.
If they adjusted the basis, they would also allow the loss as the bases would be increased and the loss would be allowed.

Shares previously sold absolutely trigger the wash sale. Just read the statute and the regs. The same lot cannot trigger a wash for the same lot though.

The only question is whether section d adjusts the basis of those sold shares. I have not seen authority requiring the service to adjust the basis of sold shares or cases where the sold shares basis was adjusted. However, most of the cases deal with bonds or land and section d deals with stocks solely. So, all we can say for sure is that it's unclear.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 3:05 pm Shares previously sold absolutely trigger the wash sale. Just read the statute and the regs. The same lot cannot trigger a wash for the same lot though.
Until there is corroboration from reputable sources on this, I hold that your interpretation is incorrect or that you are missing information.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 3:37 pm
Lee_WSP wrote: Fri Jan 21, 2022 3:05 pm Shares previously sold absolutely trigger the wash sale. Just read the statute and the regs. The same lot cannot trigger a wash for the same lot though.
Until there is corroboration from reputable sources on this, I hold that your interpretation is incorrect or that you are missing information.
The statute is not a reputable source?

Fairmarks statement that the service views it as a wash is not a reputable source?
Same as the previous example, except the “old” shares aren’t as old. You bought the old shares on June 1, the new shares on June 10, and sold the new shares at a loss on June 20.

...

Unfortunately, in a ruling dealing with an unrelated point, the IRS gave an example like the one above, and said the wash sale rule applied. The ruling was designed to establish that shares bought on margin are subject to the wash sale rule. It’s possible that the person who drafted the ruling simply didn’t think about the fact that the shares in that example weren’t replacement shares.
There's also rev ruling 70-231

https://www.taxnotes.com/research/feder ... 31/d6kz?h=*

On this point, I'm absolutely certain the wash sale rule is triggered. I'm not sure how much further authority you need.

This one also doesn't adjust the basis of the sold shares. Only disallows the loss.
https://www.taxnotes.com/research/feder ... 6-452/d1pl
Last edited by Lee_WSP on Fri Jan 21, 2022 5:40 pm, edited 1 time in total.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 3:39 pm
rkhusky wrote: Fri Jan 21, 2022 3:37 pm
Lee_WSP wrote: Fri Jan 21, 2022 3:05 pm Shares previously sold absolutely trigger the wash sale. Just read the statute and the regs. The same lot cannot trigger a wash for the same lot though.
Until there is corroboration from reputable sources on this, I hold that your interpretation is incorrect or that you are missing information.
The statute is not a reputable source?
The statute is open to different interpretations. And it is not clear whether there has been other guidance/rulings that might change interpretations. I rely on the tax attorney professionals to know all the background that might be missing from a simple reading of a statute. Now, if the IRS had an explicit example showing previously sold shares causing a wash sale, the matter would be much clearer
Lee_WSP wrote: Fri Jan 21, 2022 3:39 pm Fairmarks statement that the service views it as a wash is not a reputable source?
Same as the previous example, except the “old” shares aren’t as old. You bought the old shares on June 1, the new shares on June 10, and sold the new shares at a loss on June 20.

...

Unfortunately, in a ruling dealing with an unrelated point, the IRS gave an example like the one above, and said the wash sale rule applied. The ruling was designed to establish that shares bought on margin are subject to the wash sale rule. It’s possible that the person who drafted the ruling simply didn’t think about the fact that the shares in that example weren’t replacement shares.
That is a different situation than the one that iceport proposed. And in neither of the examples are previously sold shares causing wash sales.
Topic Author
ebs0303
Posts: 10
Joined: Thu Jan 20, 2022 6:42 pm

Re: TLH question

Post by ebs0303 »

retired@50 wrote: Fri Jan 21, 2022 10:00 am To get around the red phrase above, you could just sell the entire position in the retirement account and buy a TLH partner fund if one is available. I suspect this is why some people advise investors not to hold the exact same funds in all accounts.

Example: If your 401k has an S&P 500 fund, then hold a total stock market fund in your taxable account... When you have to TLH in taxable, swap the total market fund for a Large Cap Index or a different total market fund that tracks a different index.

Regards,
This is what I was thinking of, but will obviously take advance planning to get in on the next dip.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 3:48 pm The statute is open to different interpretations. And it is not clear whether there has been other guidance/rulings that might change interpretations. I rely on the tax attorney professionals to know all the background that might be missing from a simple reading of a statute. Now, if the IRS had an explicit example showing previously sold shares causing a wash sale, the matter would be much clearer
(a) A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock or securities if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date (referred to in this section as the 61-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities.
It does not mention anything about having to hold onto the shares. You simply need to acquire or enter into a contract to acquire substantially identical shares.
rkhusky
Posts: 17763
Joined: Thu Aug 18, 2011 8:09 pm

Re: TLH question

Post by rkhusky »

Lee_WSP wrote: Fri Jan 21, 2022 3:59 pm
rkhusky wrote: Fri Jan 21, 2022 3:48 pm The statute is open to different interpretations. And it is not clear whether there has been other guidance/rulings that might change interpretations. I rely on the tax attorney professionals to know all the background that might be missing from a simple reading of a statute. Now, if the IRS had an explicit example showing previously sold shares causing a wash sale, the matter would be much clearer
(a) A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock or securities if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date (referred to in this section as the 61-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities.
It does not mention anything about having to hold onto the shares. You simply need to acquire or enter into a contract to acquire substantially identical shares.
True. But the IRS is not limited to just the statute. There are other rulings, court cases, etc that fill in the bare bones of the statute and provide for its practical application. I'll trust that the tax professionals know all about those extra details. If this were indeed the way the statute is supposed to be interpreted, it seems like there would be some examples available showing that.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: TLH question

Post by Lee_WSP »

rkhusky wrote: Fri Jan 21, 2022 4:51 pm
Lee_WSP wrote: Fri Jan 21, 2022 3:59 pm
rkhusky wrote: Fri Jan 21, 2022 3:48 pm The statute is open to different interpretations. And it is not clear whether there has been other guidance/rulings that might change interpretations. I rely on the tax attorney professionals to know all the background that might be missing from a simple reading of a statute. Now, if the IRS had an explicit example showing previously sold shares causing a wash sale, the matter would be much clearer
(a) A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock or securities if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date (referred to in this section as the 61-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities.
It does not mention anything about having to hold onto the shares. You simply need to acquire or enter into a contract to acquire substantially identical shares.
True. But the IRS is not limited to just the statute. There are other rulings, court cases, etc that fill in the bare bones of the statute and provide for its practical application. I'll trust that the tax professionals know all about those extra details. If this were indeed the way the statute is supposed to be interpreted, it seems like there would be some examples available showing that.
It could be that their position is to allow the basis adjustment to previously sold shares, in which case it would be a moot point. But unless we have guidance which says that they do adjust the basis of previously sold shares, it's better to err on the side of caution.
Post Reply