Wash sale/TLH question [Tax Loss Harvesting]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: Wash sale/TLH question

Post by livesoft »

buyer wrote: Sat Jan 22, 2022 5:01 am Heehee... so much for an easy question! Now I don't know what to think. I guess I'll just sit tight, wait until the 31 day mark to be extra safe, and meanwhile consider whether this is even worth doing.
I think you should not wait. It will be instructive to you to see how easy all this is. As for the "easy question", you made it less easy because you dribbled out details of your recent purchases after your original post.

And by selling on Monday and responding about your experience in future threads about how easy it turned out to be, you will help many others like you who got extended responses with extraneous useless information.

I think some people reading this cannot walk across the street in a crosswalk with the signal for pedestrians: If the crosswalk sign is showing white and they start to cross, but it changes to flashing red, they probably run back to the side where they started because figuring out the crossing signal is too complicated.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Wash sale/TLH question

Post by anon_investor »

rkhusky wrote: Sat Jan 22, 2022 6:49 am
anon_investor wrote: Sat Jan 22, 2022 5:56 am You don't have to sell the entire position, just any shares purchased within the last 30 days.
I agree. If those 3 lots are all you have purchased in the last 30 days, then by selling all three you avoid a consequential wash sale. There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.

If the brokerage is a stickler and uses FIFO, they would sell the 1/3 lot with 5 shares washed (but the loss on 22 shares would be realized). The 1/4 and 1/5 lots would have their basis adjusted, preserving your loss. A microsecond later the 1/4 shares are sold with 1 share washed (the now increased loss due to the basis adjustment on 3 shares is realized). A microsecond later the 1/5 share is sold with the increased loss due to the basis adjustment realized. And you have now realized all your losses.

Or the brokerage could disregard the irrelevant wash sales because you submitted everything in one sell order and just realize all your losses in one fell swoop.
I just tax loss harvested yesterday at Fido (VTI to VOO). Because Fido sells the whole shares first then the remaining fractional shares, Fido did mark a portion of the sale of the whole shares as a wash sale, but then the sale of the fractional shares "gets back" the loss that was washed. So the net result is I realized all my losses through technically 2 transactions.
AnEngineer
Posts: 2414
Joined: Sat Jun 27, 2020 4:05 pm

Re: Wash sale/TLH question

Post by AnEngineer »

rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does. There's definitely a wash sale here, but I agree it won't affect the total loss claimed if OP sells all shares bought in the last 30 days.
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question

Post by rkhusky »

AnEngineer wrote: Sat Jan 22, 2022 8:01 am
rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does. There's definitely a wash sale here, but I agree it won't affect the total loss claimed if OP sells all shares bought in the last 30 days.
Brokerages are required by law to report wash sales for the same mutual fund in the same account. If the brokerage doesn't report a wash sale in that instance, I suppose you are free to do so. Form 8949 doesn't require a reason for declaring a wash sale - for all the IRS knows, you might have had wash sales due to purchases in other accounts.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question

Post by iceport »

AnEngineer wrote: Sat Jan 22, 2022 8:01 am
rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does.
It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
AnEngineer
Posts: 2414
Joined: Sat Jun 27, 2020 4:05 pm

Re: Wash sale/TLH question

Post by AnEngineer »

iceport wrote: Sat Jan 22, 2022 8:49 am
AnEngineer wrote: Sat Jan 22, 2022 8:01 am
rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does.
It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
So just because a broker doesn't report a wash sale means that it isn't one? That can't be the case, as purchases from other brokers could trigger a wash sale, which the first has no way to know about.
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question

Post by rkhusky »

AnEngineer wrote: Sat Jan 22, 2022 8:56 am
iceport wrote: Sat Jan 22, 2022 8:49 am
AnEngineer wrote: Sat Jan 22, 2022 8:01 am
rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does.
It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
So just because a broker doesn't report a wash sale means that it isn't one? That can't be the case, as purchases from other brokers could trigger a wash sale, which the first has no way to know about.
But I was talking about the same mutual fund in the same account.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question

Post by iceport »

rkhusky wrote: Sat Jan 22, 2022 9:00 am
AnEngineer wrote: Sat Jan 22, 2022 8:56 am
iceport wrote: Sat Jan 22, 2022 8:49 am
AnEngineer wrote: Sat Jan 22, 2022 8:01 am
rkhusky wrote: Sat Jan 22, 2022 6:49 am There might be an irrelevant wash sale, depending on how your brokerage handles things, but you will be able to claim the full loss.
How your brokerage reports things does not determine whether or not there's a wash sale, the law does.
It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
So just because a broker doesn't report a wash sale means that it isn't one? That can't be the case, as purchases from other brokers could trigger a wash sale, which the first has no way to know about.
But I was talking about the same mutual fund in the same account.
Yes, same here.

@AnEngineer, I'm strictly referring to what we like to refer to here as "irrelevant wash sales," the ones that don't really affect the bottom line tax liability. I highly doubt — though I don't know for sure — that, in the days when all this accounting was recorded by hand with ink and paper and brokers didn't report cost bases to the IRS, taxpayers routinely dissected single sell orders executed in a single transaction into every conceivable sub-transaction. I doubt there were so many of these "irrelevant wash sales" being reported. More importantly, I don't think they were breaking the law, if they ended up with the same tax liability, either way.

My own opinion is that the interpretation of the rule that creates a zillion irrelevant wash sales is more strict than it needs to be. And though electronic trading algorithms might need to deal with the sub-transactions differently than real people, I'm not convinced it's required by law.
"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: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question

Post by Lee_WSP »

As there's no clarity either way, either position is defensible. The very safe choice is to avoid triggering it in the first place.


It's a personal decision.
AnEngineer
Posts: 2414
Joined: Sat Jun 27, 2020 4:05 pm

Re: Wash sale/TLH question

Post by AnEngineer »

iceport wrote: Sat Jan 22, 2022 10:02 am
rkhusky wrote: Sat Jan 22, 2022 9:00 am
AnEngineer wrote: Sat Jan 22, 2022 8:56 am
iceport wrote: Sat Jan 22, 2022 8:49 am
AnEngineer wrote: Sat Jan 22, 2022 8:01 am
How your brokerage reports things does not determine whether or not there's a wash sale, the law does.
It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
So just because a broker doesn't report a wash sale means that it isn't one? That can't be the case, as purchases from other brokers could trigger a wash sale, which the first has no way to know about.
But I was talking about the same mutual fund in the same account.
Yes, same here.

@AnEngineer, I'm strictly referring to what we like to refer to here as "irrelevant wash sales," the ones that don't really affect the bottom line tax liability. I highly doubt — though I don't know for sure — that, in the days when all this accounting was recorded by hand with ink and paper and brokers didn't report cost bases to the IRS, taxpayers routinely dissected single sell orders executed in a single transaction into every conceivable sub-transaction. I doubt there were so many of these "irrelevant wash sales" being reported. More importantly, I don't think they were breaking the law, if they ended up with the same tax liability, either way.

My own opinion is that the interpretation of the rule that creates a zillion irrelevant wash sales is more strict than it needs to be. And though electronic trading algorithms might need to deal with the sub-transactions differently than real people, I'm not convinced it's required by law.
I agree, I bet not many people would report irrelevant wash sales if it weren't already reported to them that way. I probably would because I'm a stickler for stuff like that. But really I was just responding to the idea that whether your broker reports it as a wash sale is determinative of whether it is. I mean, if they say it is, best not to disagree unless they're definitely wrong and it costs you money, at which point you should probably get them to fix the form. But I would put zero stock in a broker not reporting it as a wash sale. They're not indemnifying me for what happens if I assume so.

BTW, based on my experience, the OP would get it reported as irrelevant wash sales. But that may depend on broker.
User avatar
LadyGeek
Site Admin
Posts: 95704
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (taxes).

FYI - We have several members asking similar questions for Tax loss harvesting and Wash sales. Each member is focusing on their own situation, so it may not make sense to combine them into a single thread for these questions. Taxes are complicated and I don't want anyone mislead - they may misinterpret an answer intended for someone else.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Wash sale/TLH question

Post by anon_investor »

Lee_WSP wrote: Sat Jan 22, 2022 10:16 am As there's no clarity either way, either position is defensible. The very safe choice is to avoid triggering it in the first place.


It's a personal decision.
FYI, at Fidelity they report the wash sale but it all nets out to the same amount of loss. I just encountered this tax loss harvesting ETFs at Fidelity. I sold an entire position which included fractional shares. The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
User avatar
LadyGeek
Site Admin
Posts: 95704
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by LadyGeek »

anon_investor wrote: Sun Jan 23, 2022 7:50 am The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
I just purchased shares in my tax-deferred account and confirm it's two transactions. Use caution, as the fractional share price can be different. Although my transaction times were less than 1 second apart, BND was first purchased at 83.0550 and then at 83.0556.

It was interesting to see real-time price change in action. 8-)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question

Post by rkhusky »

anon_investor wrote: Sun Jan 23, 2022 7:50 am FYI, at Fidelity they report the wash sale but it all nets out to the same amount of loss. I just encountered this tax loss harvesting ETFs at Fidelity. I sold an entire position which included fractional shares. The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
Did the whole shares from a lot cause a wash sale for the fractional shares in the same lot?
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by rkhusky »

LadyGeek wrote: Sun Jan 23, 2022 8:00 am
anon_investor wrote: Sun Jan 23, 2022 7:50 am The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
I just purchased shares in my tax-deferred account and confirm it's two transactions. Use caution, as the fractional share price can be different. Although my transaction times were less than 1 second apart, BND was first purchased at 83.0550 and then at 83.0556.

It was interesting to see real-time price change in action. 8-)
Were they then divided into two lots? Not a big deal for tax-advantaged but makes things messier in taxable.
User avatar
LadyGeek
Site Admin
Posts: 95704
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by LadyGeek »

They were tracked as separate transactions with their own cost basis. If I decide to sell the shares, I can choose a "Specify shares" link which allows me to select any transaction. If I wanted to only sell the fractional share, I could.

I don't see anything which explicitly identifies a lot and I'm guessing you have make your own lots by sorting things the way you like. Fidelity's help: Trading Specific Shares
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Wash sale/TLH question

Post by anon_investor »

rkhusky wrote: Sun Jan 23, 2022 8:00 am
anon_investor wrote: Sun Jan 23, 2022 7:50 am FYI, at Fidelity they report the wash sale but it all nets out to the same amount of loss. I just encountered this tax loss harvesting ETFs at Fidelity. I sold an entire position which included fractional shares. The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
Did the whole shares from a lot cause a wash sale for the fractional shares in the same lot?
I think so. Because the way Fidelity does it when you make a sale that includes fractional shares they use FIFO to determine which portion gets sold separately as fractional shares.

So if you have 10.75 shares broken up into lots: 2, 2, 2.5, 2.25, 2; they sell the first 10 shares as 1 transaction and the 0.75 shares as a second transaction. This means that last 2 share lot (purchased within the last 30 days) has been broken up and sold in two transactions. That is how it appeared in my account listed under the YTD tax section.

I checked and the 2nd transaction recaptured the disallowed loss from the 1st transaction. So the net loss was the same. This is different than how Vanguard reports it when you sell a mutual fund position. Vanguard just reports the net loss and does not break it up (even if you are using SpecID).

At Fidelity if you are not selling fractional shares, then it might be reported similarly to how Vanguard does mutual funds, it is the 2 separate transactions that is causing Fidelity to report the wash sale, because a shares purchased within the last 30 days are still owned after the first transaction. If all shares were sold at the same time, I don't think there is technically a wash sale since no shares are remaining to increase the cost basis for a disallowed loss.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question

Post by iceport »

AnEngineer wrote: Sat Jan 22, 2022 8:56 pm
iceport wrote: Sat Jan 22, 2022 10:02 am
rkhusky wrote: Sat Jan 22, 2022 9:00 am
AnEngineer wrote: Sat Jan 22, 2022 8:56 am
iceport wrote: Sat Jan 22, 2022 8:49 am

It sure seems like that should be the case, doesn't it? Unfortunately, the law has never been clarified sufficiently to rule out different interpretations. The brokers all need to pick a reasonable method, just like the rest of us.
So just because a broker doesn't report a wash sale means that it isn't one? That can't be the case, as purchases from other brokers could trigger a wash sale, which the first has no way to know about.
But I was talking about the same mutual fund in the same account.
Yes, same here.

@AnEngineer, I'm strictly referring to what we like to refer to here as "irrelevant wash sales," the ones that don't really affect the bottom line tax liability. I highly doubt — though I don't know for sure — that, in the days when all this accounting was recorded by hand with ink and paper and brokers didn't report cost bases to the IRS, taxpayers routinely dissected single sell orders executed in a single transaction into every conceivable sub-transaction. I doubt there were so many of these "irrelevant wash sales" being reported. More importantly, I don't think they were breaking the law, if they ended up with the same tax liability, either way.

My own opinion is that the interpretation of the rule that creates a zillion irrelevant wash sales is more strict than it needs to be. And though electronic trading algorithms might need to deal with the sub-transactions differently than real people, I'm not convinced it's required by law.
I agree, I bet not many people would report irrelevant wash sales if it weren't already reported to them that way. I probably would because I'm a stickler for stuff like that. But really I was just responding to the idea that whether your broker reports it as a wash sale is determinative of whether it is. I mean, if they say it is, best not to disagree unless they're definitely wrong and it costs you money, at which point you should probably get them to fix the form. But I would put zero stock in a broker not reporting it as a wash sale. They're not indemnifying me for what happens if I assume so.

BTW, based on my experience, the OP would get it reported as irrelevant wash sales. But that may depend on broker.
We're in violent agreement on all points, AnEngineer!

This is really one of the most unfortunate unintended consequences of the legislation that required brokers to start reporting cost bases. It gives people the wrong impression that: 1a) brokers are required to report all wash sales (they aren't); 1b) that if a broker doesn't report a wash sale it didn't happen (a huge percentage of true wash sales are never reported by brokers); and 2) that if a broker reports a wash sale it definitely did happen (though some brokers may elect to process single transactions as multiple sub-transactions, potentially creating wash sales, there seems to be no definitive legal requirement to do so).

That's why I cringe every time I see forum members advise others to just place an order to see whether the broker reports a wash sale — as if that's a definitive litmus test of a wash sale. That kind of advice is horrible, because it only reinforces the completely erroneous assumptions described above.

The legal reporting requirements for brokers are — necessarily and intentionally — far narrower than those for the individual investor.

I also agree with you that, in the case that sub-transactions were created and documented by a broker, it's probably best to just roll with it, as long as no undue tax liability is involved. But I figure at some point, sooner or later, I'm going to find myself correcting a cost basis my broker has reported.
Last edited by iceport on Sun Jan 23, 2022 8:46 pm, 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
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question

Post by iceport »

anon_investor wrote: Sun Jan 23, 2022 8:16 am
rkhusky wrote: Sun Jan 23, 2022 8:00 am
anon_investor wrote: Sun Jan 23, 2022 7:50 am FYI, at Fidelity they report the wash sale but it all nets out to the same amount of loss. I just encountered this tax loss harvesting ETFs at Fidelity. I sold an entire position which included fractional shares. The way Fidelity handles it for ETFs, they sell the whole shares first then the fractional shares. So it created a technical wash sale, but the net loss was the same.
Did the whole shares from a lot cause a wash sale for the fractional shares in the same lot?
I think so. Because the way Fidelity does it when you make a sale that includes fractional shares they use FIFO to determine which portion gets sold separately as fractional shares.

So if you have 10.75 shares broken up into lots: 2, 2, 2.5, 2.25, 2; they sell the first 10 shares as 1 transaction and the 0.75 shares as a second transaction. This means that last 2 share lot (purchased within the last 30 days) has been broken up and sold in two transactions. That is how it appeared in my account listed under the YTD tax section.

I checked and the 2nd transaction recaptured the disallowed loss from the 1st transaction. So the net loss was the same. This is different than how Vanguard reports it when you sell a mutual fund position. Vanguard just reports the net loss and does not break it up (even if you are using SpecID).

At Fidelity if you are not selling fractional shares, then it might be reported similarly to how Vanguard does mutual funds, it is the 2 separate transactions that is causing Fidelity to report the wash sale, because a shares purchased within the last 30 days are still owned after the first transaction. If all shares were sold at the same time, I don't think there is technically a wash sale since no shares are remaining to increase the cost basis for a disallowed loss.
Thanks for sharing this, anon_investor. It's very helpful for the discussion to confirm that different brokers treat the same types of transactions differently with respect to wash sale identification and reporting. This post is a vivid example of two different brokers choosing to handle their cost basis reporting differently. And, to my mind, it demonstrates clearly that breaking apart transactions and reporting wash sales between those sub-transactions is optional. Vanguard is certainly complying with all legal wash sale reporting requirements, even though they elect not to report "irrelevant" wash sales.
"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: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by Lee_WSP »

The instructions for schedule d explicitly states to not rely on 1099-b as to whether or not you have a wash sale.
quietseas
Posts: 901
Joined: Fri Dec 27, 2013 3:43 pm

Re: Wash sale/TLH question

Post by quietseas »

If the IRS gives me clear, plain English direction I will of course comply with it. I'm not going to hire a tax attorney with 30 years' experience to tell me "it depends" or "maybe". I do the best I can as a lay person using off the shelf tax software. If the IRS has issue with my return they will contact me.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by anon_investor »

Lee_WSP wrote: Sun Jan 23, 2022 11:32 am The instructions for schedule d explicitly states to not rely on 1099-b as to whether or not you have a wash sale.
In respect to the reportable loss the 1099-b is accurate either way. Wash sales are not illegal. As long you are able to claim the net loss, that is what you should care about.
User avatar
Lee_WSP
Posts: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by Lee_WSP »

anon_investor wrote: Sun Jan 23, 2022 11:44 am
Lee_WSP wrote: Sun Jan 23, 2022 11:32 am The instructions for schedule d explicitly states to not rely on 1099-b as to whether or not you have a wash sale.
In respect to the reportable loss the 1099-b is accurate either way. Wash sales are not illegal. As long you are able to claim the net loss, that is what you should care about.
If it's accurate, it's accurate. The instructions just say don't rely on it.

Each taxpayer is responsible for their own taxes.
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by rkhusky »

LadyGeek wrote: Sun Jan 23, 2022 8:15 am They were tracked as separate transactions with their own cost basis. If I decide to sell the shares, I can choose a "Specify shares" link which allows me to select any transaction. If I wanted to only sell the fractional share, I could.

I don't see anything which explicitly identifies a lot and I'm guessing you have make your own lots by sorting things the way you like. Fidelity's help: Trading Specific Shares
I would suspect that Fidelity lists the different lots on separate lines, at least for covered shares.

In your link Fidelity calls them tax lots and shares within a tax lot can be treated differently than shares from different tax lots. For example, the link says you can only choose one group of shares within a tax lot to sell in a given transaction. And shares from different tax lots are treated differently from shares within a tax lot in regards to wash sales.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by grabiner »

Lee_WSP wrote: Sun Jan 23, 2022 11:55 am
anon_investor wrote: Sun Jan 23, 2022 11:44 am
Lee_WSP wrote: Sun Jan 23, 2022 11:32 am The instructions for schedule d explicitly states to not rely on 1099-b as to whether or not you have a wash sale.
In respect to the reportable loss the 1099-b is accurate either way. Wash sales are not illegal. As long you are able to claim the net loss, that is what you should care about.
If it's accurate, it's accurate. The instructions just say don't rely on it.

Each taxpayer is responsible for their own taxes.
And there are several situations in which you may know that a 1099-B is inaccurate. For a wash sale, the obvious example is selling a security in one account and buying the same security in a different account; your brokerage will not report this (and may not be able to report it if the other account is at a different brokerage). Another example, which Vanguard does not get right, is selling a fund share held for six months or less for a loss when it distributed a long-term capital gain; you have to recharacterize an amount equal to the gain from short-term to long-term loss.

This is why Form 8949 allows you to make adjustments for covered securities.
Wiki David Grabiner
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by rkhusky »

grabiner wrote: Sun Jan 23, 2022 8:13 pm Another example, which Vanguard does not get right, is selling a fund share held for six months or less for a loss when it distributed a long-term capital gain; you have to recharacterize an amount equal to the gain from short-term to long-term loss.
And isn't there a rule about qualified dividends losing their qualified status if the shares are held for less than 61 days? The taxpayer is responsible for making this adjustment.
AnEngineer
Posts: 2414
Joined: Sat Jun 27, 2020 4:05 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by AnEngineer »

grabiner post_id wrote: And there are several situations in which you may know that a 1099-B is inaccurate.
ESPP is my 'favorite' example.
softmax
Posts: 299
Joined: Tue Feb 04, 2020 12:27 am

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by softmax »

Hey folks, let me ask a simple question TLH question:

So all my short-term SCHB lots are under water (or very close to) now. For simplicity, can I just sell all the short term holdings and buy VOO/VTI?
Topic Author
buyer
Posts: 52
Joined: Tue Jul 20, 2021 1:25 am

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by buyer »

OP here again. I went ahead and sold about half my IXUS today, including the 3 lots bought in the last 30 days. Exchanged for an equivalent amount of VXUS.

(Accidentally sold one IXUS lot for a long-term gain. Oops. At least it was only $2.)

Fidelity reports "wash sale" for the 1/4 and 1/5 lots and "disallowed loss" for their losses.

The 1/3 lot has been partially "adjusted due to previous wash sale disallowed loss" (marked with "w" after the dates acquired).

Would appreciate help interpreting. Are these the "inaccurate" or "irrelevant" wash sales that have been discussed?

Image
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by iceport »

buyer wrote: Tue Jan 25, 2022 12:08 am Fidelity reports "wash sale" for the 1/4 and 1/5 lots and "disallowed loss" for their losses.

The 1/3 lot has been partially "adjusted due to previous wash sale disallowed loss" (marked with "w" after the dates acquired).

Would appreciate help interpreting. Are these the "inaccurate" or "irrelevant" wash sales that have been discussed?
Yes, the two "wash sales" Fidelity reported are the "irrelevant" kind that have been discussed. (Nice, clear documentation of the accounting, BTW.)

You can tell by the cost basis adjustments. The actual cost paid per share for the 1/3/22 lot is $71.31.

The single share of the 1/3/22 lot sold with an adjusted basis had its basis adjusted upwards by $2.29. So you realized the $2.29 loss disallowed from the sale of the 1/5/22 lot with that sale, and that loss is allowed and reported as such.

The 4 shares of the 1/3/22 lot sold with an adjusted basis had the basis for the 4 shares adjusted upwards by $12.16. So you realized the $12.16 loss disallowed from the sale of the 4 share lot of 1/4/22 with that sale, and that loss is allowed and reported.

So in the end, all your losses were realized and allowed. The end result is the same as if there were no wash sales reported and no cost basis adjustments. That's a classic case of an irrelevant wash sale.

(Some brokers might not report any wash sale for these same transactions. So is it a true wash sale, or not? It seems to depend upon the broker.)

The only part that confuses me is the extra $5.54 in net ST losses that shows up in the YTD summary at the top. Did you have another transaction with a small loss already this year?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
gobel
Posts: 553
Joined: Mon Feb 08, 2021 3:50 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by gobel »

iceport wrote: Tue Jan 25, 2022 3:05 am
buyer wrote: Tue Jan 25, 2022 12:08 am Fidelity reports "wash sale" for the 1/4 and 1/5 lots and "disallowed loss" for their losses.

The 1/3 lot has been partially "adjusted due to previous wash sale disallowed loss" (marked with "w" after the dates acquired).

Would appreciate help interpreting. Are these the "inaccurate" or "irrelevant" wash sales that have been discussed?
Yes, the two "wash sales" Fidelity reported are the "irrelevant" kind that have been discussed. (Nice, clear documentation of the accounting, BTW.)
What's most interesting is that the other 22 shares from 01/03/2022 did not trigger a wash on any of the many other shares sold at a loss. This lends credence to the discussion in one of the threads about whether or not already-sold shares are considered "replacement shares".

The only way to explain OP's gain/loss summary is that the shares were considered sold LIFO *and* that Fidelity does not consider already-sold shares:
  1. the 1 share from 01/05 is sold, which is washed onto 01/03, splitting that lot
  2. the 4 shares from 01/04 is sold, which is washed onto 01/03, splitting that lot again
  3. the 1,4,22 shares from 01/03 are sold, no replacement shares available, so everything realized
  4. everything else sold, no replacement shares available, so everything realized
This is a key question of people who want to sell a recently reinvested dividend in an IRA before selling the same stock in taxable for a loss. If already-sold shares still count as replacement-shares, then that still won't escape washing losses into an IRA. But if they do not count, like the example here, then selling the reinvested shares first would work.

It still doesn't settle the question about how the IRS wants it treated, but it's useful to see what a major brokerage has implemented (like the etrade example I gave in the other thread).
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by iceport »

gobel wrote: Wed Jan 26, 2022 12:11 pm
iceport wrote: Tue Jan 25, 2022 3:05 am
buyer wrote: Tue Jan 25, 2022 12:08 am Fidelity reports "wash sale" for the 1/4 and 1/5 lots and "disallowed loss" for their losses.

The 1/3 lot has been partially "adjusted due to previous wash sale disallowed loss" (marked with "w" after the dates acquired).

Would appreciate help interpreting. Are these the "inaccurate" or "irrelevant" wash sales that have been discussed?
Yes, the two "wash sales" Fidelity reported are the "irrelevant" kind that have been discussed. (Nice, clear documentation of the accounting, BTW.)
What's most interesting is that the other 22 shares from 01/03/2022 did not trigger a wash on any of the many other shares sold at a loss. This lends credence to the discussion in one of the threads about whether or not already-sold shares are considered "replacement shares".

The only way to explain OP's gain/loss summary is that the shares were considered sold LIFO *and* that Fidelity does not consider already-sold shares:
  1. the 1 share from 01/05 is sold, which is washed onto 01/03, splitting that lot
  2. the 4 shares from 01/04 is sold, which is washed onto 01/03, splitting that lot again
  3. the 1,4,22 shares from 01/03 are sold, no replacement shares available, so everything realized
  4. everything else sold, no replacement shares available, so everything realized
This is a key question of people who want to sell a recently reinvested dividend in an IRA before selling the same stock in taxable for a loss. If already-sold shares still count as replacement-shares, then that still won't escape washing losses into an IRA. But if they do not count, like the example here, then selling the reinvested shares first would work.

It still doesn't settle the question about how the IRS wants it treated, but it's useful to see what a major brokerage has implemented (like the etrade example I gave in the other thread).

Yes, I agree with your analysis, gobel. Thanks for digging deeper. It also appeared to me that LIFO was used to select the shares sold. That order also potentially avoided the need to adjust the acquisition date of the replacement shares, which I was also curious about.

I don't think considering the shares already sold as potential replacement shares is logical at all, so it's no surprise to me that Fidelity didn't do that.


What still bothers me is that they find the need to break up the transaction at all. If you ask me, there is no true wash sale at all involved here, if all shares are sold simultaneously. If we conceptualize the sale procedure using physical paper stock certificates, Fidelity's accounting can be thought of as the seller handing over only the certificates of a single tax lot at a time to the buyer, and getting paid for it, before the rest of the certificates are sold. In real life, I would envision a process in which — regardless of the method used to select the shares for sale — all selected stock certificates from all tax lots are handed over in one big bundle, and the seller is paid for all of them at once. In that scenario, as long as all shares bought in the wash sale period are included in the single bundle of certificates handed over to the buyer in the sale, there are no replacement shares left to create any wash sale at all.

Besides being irrelevant, the wash sales reported above are also *optional*, depending upon the sale process assumed. At least that's what makes sense to me.
"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: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by Lee_WSP »

Well, that's how the regs and the related transactions doctrine says you have to do it regardless of how you think it's supposed to work.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by iceport »

^ According to your interpretation of the regs, the losses would have been permanently disallowed. Obviously, that interpretation was wrong — unless you think Fidelity's accounting is counter to the law.
"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: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by Lee_WSP »

iceport wrote: Wed Jan 26, 2022 1:36 pm ^ According to your interpretation of the regs, the losses would have been permanently disallowed. Obviously, that interpretation was wrong — unless you think Fidelity's accounting is counter to the law.
I said the service might permanently disallow the loss. We have no guidance on why these taxpayers bother to contest it if it's just deferred. The regs says the basis is supposed to be adjusted.
rkhusky
Posts: 17768
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by rkhusky »

Lee_WSP wrote: Wed Jan 26, 2022 1:54 pm
iceport wrote: Wed Jan 26, 2022 1:36 pm ^ According to your interpretation of the regs, the losses would have been permanently disallowed. Obviously, that interpretation was wrong — unless you think Fidelity's accounting is counter to the law.
I said the service might permanently disallow the loss. We have no guidance on why these taxpayers bother to contest it if it's just deferred. The regs says the basis is supposed to be adjusted.
They might have had capital gains that particular year to offset. They may have wanted to realize the tax advantage now, rather than waiting for how many years. They could then invest the tax savings to earn additional money, rather than giving it to the government.
User avatar
Lee_WSP
Posts: 10403
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by Lee_WSP »

rkhusky wrote: Wed Jan 26, 2022 3:26 pm
Lee_WSP wrote: Wed Jan 26, 2022 1:54 pm
iceport wrote: Wed Jan 26, 2022 1:36 pm ^ According to your interpretation of the regs, the losses would have been permanently disallowed. Obviously, that interpretation was wrong — unless you think Fidelity's accounting is counter to the law.
I said the service might permanently disallow the loss. We have no guidance on why these taxpayers bother to contest it if it's just deferred. The regs says the basis is supposed to be adjusted.
They might have had capital gains that particular year to offset. They may have wanted to realize the tax advantage now, rather than waiting for how many years. They could then invest the tax savings to earn additional money, rather than giving it to the government.
Well, Estroff's was permanently disallowed and no basis adjusted, so they've done it at least once in the past. Although the facts of that case is more like embezzlement.
Topic Author
buyer
Posts: 52
Joined: Tue Jul 20, 2021 1:25 am

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by buyer »

Thanks for the detailed explanations. I admit I was a bit alarmed by the "Disallowed Loss" number. Glad to know it's not an issue.

iceport wrote: Tue Jan 25, 2022 3:05 am So in the end, all your losses were realized and allowed. The end result is the same as if there were no wash sales reported and no cost basis adjustments. That's a classic case of an irrelevant wash sale.
Excellent. So, I assume my 1099-B form next year should have this all straight? I shouldn't need to enter any manual adjustments?
iceport wrote: Tue Jan 25, 2022 3:05 am The only part that confuses me is the extra $5.54 in net ST losses that shows up in the YTD summary at the top. Did you have another transaction with a small loss already this year?
Yes indeed, I sold a small muni-bond ETF lot at a loss earlier in the month (part of my plan to reallocate bonds to tax-advantaged accounts this year). I cropped that out of the screenshot, sorry for the confusion.

gobel wrote: Wed Jan 26, 2022 12:11 pmWhat's most interesting is that the other 22 shares from 01/03/2022 did not trigger a wash on any of the many other shares sold at a loss. This lends credence to the discussion in one of the threads about whether or not already-sold shares are considered "replacement shares".

The only way to explain OP's gain/loss summary is that the shares were considered sold LIFO *and* that Fidelity does not consider already-sold shares:
  1. the 1 share from 01/05 is sold, which is washed onto 01/03, splitting that lot
  2. the 4 shares from 01/04 is sold, which is washed onto 01/03, splitting that lot again
  3. the 1,4,22 shares from 01/03 are sold, no replacement shares available, so everything realized
  4. everything else sold, no replacement shares available, so everything realized
Interestingly, I actually used "sell specific shares" and selected the lots manually. Checking my account preferences, it says my default disposal method is FIFO.
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by livesoft »

Thanks for showing all this. We are kinda back to the very beginning of the thread now, right? All's well that ends well.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by iceport »

buyer wrote: Thu Jan 27, 2022 1:57 am Thanks for the detailed explanations. I admit I was a bit alarmed by the "Disallowed Loss" number. Glad to know it's not an issue.

iceport wrote: Tue Jan 25, 2022 3:05 am So in the end, all your losses were realized and allowed. The end result is the same as if there were no wash sales reported and no cost basis adjustments. That's a classic case of an irrelevant wash sale.
Excellent. So, I assume my 1099-B form next year should have this all straight? I shouldn't need to enter any manual adjustments?
Exactly. There wasn't really any question of whether the reporting would be "correct" or not, just whether it would identify and report any wash sales as part of the transaction. Based on the experiences of others, Fidelity was expected to break apart the transaction and create an "irrelevant" wash sale. Given the persistent ambiguity of the wash sale rule, I don't think either method could be labeled "inaccurate." You should definitely just use Fidelity's numbers, since they result in your full loss being realized anyway, and there's no need to further complicate your tax return.

You will still see a disallowed loss on your 1099-B, but rest assured that loss is subsequently accounted for and allowed through the sale of the shares with adjusted cost bases. It all comes out in the wash. :wink:


I'll just point out that the dollar value of the disallowed loss is pretty small. It resulted from a *partial* wash sale, one that involved only very few shares. So even in a situation in which that wash sale resulted from replacement shares being bought in an IRA, thus preventing the cost basis adjustments and eventual realization of the disallowed loss, it shouldn't have prevented you from harvesting the bulk of the losses and just sacrificing the minor disallowed losses. For all we know, you lost more money than that just in the time it took to buy your substitute ETF after selling the original ETF.

buyer wrote: Thu Jan 27, 2022 1:57 am
iceport wrote: Tue Jan 25, 2022 3:05 am The only part that confuses me is the extra $5.54 in net ST losses that shows up in the YTD summary at the top. Did you have another transaction with a small loss already this year?
Yes indeed, I sold a small muni-bond ETF lot at a loss earlier in the month (part of my plan to reallocate bonds to tax-advantaged accounts this year). I cropped that out of the screenshot, sorry for the confusion.
:thumbsup Beautiful.

buyer wrote: Thu Jan 27, 2022 1:57 am
gobel wrote: Wed Jan 26, 2022 12:11 pmWhat's most interesting is that the other 22 shares from 01/03/2022 did not trigger a wash on any of the many other shares sold at a loss. This lends credence to the discussion in one of the threads about whether or not already-sold shares are considered "replacement shares".

The only way to explain OP's gain/loss summary is that the shares were considered sold LIFO *and* that Fidelity does not consider already-sold shares:
  1. the 1 share from 01/05 is sold, which is washed onto 01/03, splitting that lot
  2. the 4 shares from 01/04 is sold, which is washed onto 01/03, splitting that lot again
  3. the 1,4,22 shares from 01/03 are sold, no replacement shares available, so everything realized
  4. everything else sold, no replacement shares available, so everything realized
Interestingly, I actually used "sell specific shares" and selected the lots manually. Checking my account preferences, it says my default disposal method is FIFO.
The trading algorithms brokerages use are a mystery to me. Maybe by your picking specific shares to sell, Fidelity was free to trade them in whatever order was most convenient for them (assuming they are treated as discrete transactions at all). Maybe others could help to clarify that question.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
m0derton
Posts: 43
Joined: Sun Apr 04, 2021 1:40 am

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by m0derton »

So, how would this work if the wash sale wraps between two years (i.e. Dec 2021 and Jan 2022)? I sold some shares of a ticker for a loss on 12/20 and accidentally purchased the exact same ticker on 1/3. I then sold those replacement shares on 1/26. The broker calculated the disallowed loss correctly and applied it to the cost basis of the replacement shares, but I am unsure what will eventually be shown on my 2021 tax document.

To show some numbers:
  • The 12/20 sale generated $26.48 in loss from 4.45076 shares and $125.63 loss from 25.30984 shares.
  • The 1/3 purchase was for 8.66152 shares, so they split them into two lots of 4.45076 shares and 4.21076 shares.
  • They reported a disallowed loss of $26.48 for the 4.5076 shares sold on 12/20 and then added $5.95/share to the price of my 1/3 purchase (26.48*(4.45076/4.45076)/4.45076=5.95).
  • They reported a disallowed loss of $20.90 for the 4.21076 shares sold on 12/20 and then added $4.96/share to the price of my 1/3 purchase (125.63*(4.21076/25.30984)/4.21076=4.96).
Does this mean that my 2021 tax document will show a loss of $0 (i.e. 26.48-26.48) and a loss of $104.73 (i.e. 125.63-20.90)?
User avatar
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by iceport »

m0derton wrote: Thu Jan 27, 2022 6:03 pm So, how would this work if the wash sale wraps between two years (i.e. Dec 2021 and Jan 2022)? I sold some shares of a ticker for a loss on 12/20 and accidentally purchased the exact same ticker on 1/3. I then sold those replacement shares on 1/26. The broker calculated the disallowed loss correctly and applied it to the cost basis of the replacement shares, but I am unsure what will eventually be shown on my 2021 tax document.

To show some numbers:
  • The 12/20 sale generated $26.48 in loss from 4.45076 shares and $125.63 loss from 25.30984 shares.
  • The 1/3 purchase was for 8.66152 shares, so they split them into two lots of 4.45076 shares and 4.21076 shares.
  • They reported a disallowed loss of $26.48 for the 4.5076 shares sold on 12/20 and then added $5.95/share to the price of my 1/3 purchase (26.48*(4.45076/4.45076)/4.45076=5.95).
  • They reported a disallowed loss of $20.90 for the 4.21076 shares sold on 12/20 and then added $4.96/share to the price of my 1/3 purchase (125.63*(4.21076/25.30984)/4.21076=4.96).
Does this mean that my 2021 tax document will show a loss of $0 (i.e. 26.48-26.48) and a loss of $104.73 (i.e. 125.63-20.90)?
That looks about right.

Wash-sale rule: What to avoid when selling your investments for a tax loss
3. Sell at year-end and re-buy when January starts

Tax-loss harvesting is one of the most popular tax-reduction strategies, but those doing it near the end of the year will want to pay particular attention to this rule. You’ll only have until the end of the calendar year to position your portfolio to be in compliance. So you must clear wash sales by Dec. 31 to be able to claim any associated loss on that year’s tax return.

But don’t think that once the new year begins that you can re-buy the asset within 30 days and not run afoul of the law. Your brokerage is watching, and the delay between the end of the year and when your taxes are due gives your firm plenty of time to report your account accurately.
There's a video tutorial for TradeLog software that briefly covers a potential pitfall to creating January wash sales: turning a loss into a gain for the prior year. (Your case does not do that.) Four or five minutes of this YouTube video might be of interest to you. It's queued up to the pertinent spot here.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
m0derton
Posts: 43
Joined: Sun Apr 04, 2021 1:40 am

Re: Wash sale/TLH question [Tax Loss Harvesting]

Post by m0derton »

iceport wrote: Fri Jan 28, 2022 1:04 pm There's a video tutorial for TradeLog software that briefly covers a potential pitfall to creating January wash sales: turning a loss into a gain for the prior year. (Your case does not do that.) Four or five minutes of this YouTube video might be of interest to you. It's queued up to the pertinent spot here.
Thanks for the response and the link to the video. I will be on the lookout for what my 1099 shows, but I'm glad I was at least able to reproduce their numbers.
Post Reply