FactualFran wrote: ↑Sat Jan 15, 2022 4:14 pm
iceport wrote: ↑Sat Jan 15, 2022 12:33 am
With FIFO, shares are selected chronologically, in the order in which they were bought. The shares bought first — the oldest shares — are sold first. In a tax lot in which all shares were bought at the same time, it doesn't matter which shares are selected first.
If it doesn't matter which shares of the same purchase are selected first, then shares with a basis adjusted by a wash sale can be selected first. The result can be that a loss deferred due to a wash sale is realized. Selling some share of a purchase for a loss is not a wash sale with other shares of the same purchase.
iceport wrote: ↑Sat Jan 15, 2022 12:33 am
In a tax lot in which some shares have had their holding periods adjusted, those shares with the longest holding periods are selected for sale first. The holding period for each share is the time from the purchase to the sale of the share.
What is the law, regulation, or ruling that indicates that the "shares with the longest holding periods are selected for sale first"? A regulation is: "the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period of the stock". Note that it is the earliest lot purchased, not the lot with the longest holding period.
iceport wrote: ↑Sat Jan 15, 2022 12:33 am
When replacement shares from a wash sale have their holding periods adjusted, the holding periods of the shares sold are added* to the holding periods of the replacement shares they are matched with. So they become "older" shares. And they are selected first using FIFO.
What is the law, regulation, or ruling that indicates that a wash sale changes when a share has been purchased or acquired for determining the earliest lot? A wash sale changes the holding period, not the purchase or acquisition date.
Longest holding period, earliest acquisition date, oldest — is there a meaningful difference between any of these?
Publication 550 specifies how the holding period is to be measured:
Holding Period
If you sold or traded investment property, you must determine your holding period for the property. Your holding period determines whether any capital gain or loss was a short-term or a long-term capital gain or loss.
Long-term or short-term. If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss.
To determine how long you held the investment property, begin counting on the date after the day you acquired the property. The day you disposed of the property is part of your holding period.
Thus, the holding period is determined by measuring the time period starting on (and including) the day after the acquisition date, to and including the sale date.
For the shares that have had their holding period adjusted by a wash sale,
what date would you propose to use for the acquisition date, which determines where the counting of days begins?
As I see it, there are three possibilities: 1) the acquisition date of the old shares sold (interpreting the word "include" to indicate an *overlap* in the holding period of the replacement shares with the holding period of the old shares); 2) a date even *earlier* than the acquisition date of the old shares sold (assuming the holding period adjustment is additive, not overlapping); or 3) the acquisition date of the replacement shares.
There could be reasonable arguments made for either 1) or 2), but using 3) doesn't appear to have any justification. Adjusting the holding period effectively adjusts the acquisition date. Kaye Thomas certainly seems to use the phrases "adjusted holding period" and "adjusted acquisition date" interchangeably. You felt comfortable using other Fairmark.com articles for guidance, but seem to resist the explanations offered in the FIFO article.
FactualFran wrote: ↑Sat Jan 15, 2022 4:14 pm
iceport wrote: ↑Sat Jan 15, 2022 12:33 amNote that Kaye Thomas has covered this topic at Fairmark.com, also.
FIFO: First-In, First-Out
Use the adjusted acquisition date
In various situations the tax law treats you as having acquired shares on a date that differs from your actual acquisition date.
Partly for this reason [the use of common sense in a preceding example], and partly based on other admittedly weak but supportive authorities, the proper approach is to apply FIFO based on the adjusted acquisition date whenever it differs from the actual acquisition date.
The example giving at Fairmark is a stock split. 100 shares bought two years ago are now 200 shares. 100 shares bought three months ago are now 200 shares. The post-split shares have the acquisition date of the corresponding pre-split shares. The date of the split is not an acquisition date for determining basis.
Yes, exactly. As was noted right at the top of the section curiously entitled,
Use the adjusted acquisition date, "In various situations the tax law treats you as having acquired shares on a date that differs from your actual acquisition date." This was but one example. Similarly, the actual acquisition date of wash sale replacement shares is not to be used as the acquisition date of the replacement shares in applying FIFO.
The holding period adjustment due to a wash sale is tangentially included in one of the proposed rules for breaking an apparent "tie" in the acquisition dates:
A tie that results from an adjustment in the holding period of shares (for example, when the wash sale rule applies) will be broken by looking to the actual acquisition date.
Implicit in that language is the fact that the actual acquisition date is not otherwise relevant for shares with an adjusted holding period, because the adjusted holding period results in an adjusted acquisition date.
The last point that needs to be made is that if you are hoping to find a "law, regulation, or ruling" that explicitly governs every aspect of the wash sale rule, you are destined for disappointment. For many of even the most common points of confusion, there is no clear text governing specific accounting practices. But in my experience in applying the rule to the best of my ability, the use of common sense and a sharp focus on the overall intent of the wash sale rule usually helps a whole lot in making sense of the inadequately defined rules.
I expect that you will not be persuaded by these arguments. So I'll just end with the same idea I offered before: In choosing between two conflicting interpretations of the wash sale rule, I'd rather be sitting at an IRS audit discussing potential deviations from the letter of the law while having acted in strict conformance with the spirit of the law, than discussing how I blatantly violated the spirit of the law while trying to justify it by arguing that a loophole exists in the letter of the law. Using that reasoning as a guide, "Wash Sale Laundering" is perched on shaky ground, and I don't expect to see a wiki article spelling out how it's done anytime soon.
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