Wash sale situation

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Topic Author
usindus2022
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Wash sale situation

Post by usindus2022 »

I need some help in figuring out if I have a wash sale in the end.

Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA

VFIAX and VOO are substantially identical.

Tran #3 is a wash sale situation because Tran #2 took place within 30 days of Tran #3 (a loss).
However, because I sold Tran #2 shares on 8/12/2022 (Tran #4) I no longer own the replacement shares. In this scenario, do I still have a wash sale or it is no longer a wash sale because I sold replacement shares within the same tax year?

Thanks,
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

usindus2022 wrote: Sat Aug 13, 2022 1:54 pm I need some help in figuring out if I have a wash sale in the end.

Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA

VFIAX and VOO are substantially identical.

Tran #3 is a wash sale situation because Tran #2 took place within 30 days of Tran #3 (a loss).
However, because I sold Tran #2 shares on 8/12/2022 (Tran #4) I no longer own the replacement shares. In this scenario, do I still have a wash sale or it is no longer a wash sale because I sold replacement shares within the same tax year?

Thanks,
Selling the so called replacement shares does not change anything.
dbr
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Re: Wash sale situation

Post by dbr »

My understanding is that technically you have to go through each step of all the transactions, disallow disallowed losses, adjust basis for disallowed losses, go to next step, etc. But the result if you end up in the same year owning nothing is that the result is the same as if your losses were not wash sales. If you are doing this at the same broker it should all "wash" out in their bookkeeping.

The wash sale rule is to prevent people from taking a tax loss while not actually divesting themselves of the position except by waiting long enough. You, however, have completely divested yourself of the position. If you do the transactions over separate years the reporting doesn't even up until the second tax return.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

dbr wrote: Sat Aug 13, 2022 5:46 pm My understanding is that technically you have to go through each step of all the transactions, disallow disallowed losses, adjust basis for disallowed losses, go to next step, etc. But the result if you end up in the same year owning nothing is that the result is the same as if your losses were not wash sales. If you are doing this at the same broker it should all "wash" out in their bookkeeping.

The wash sale rule is to prevent people from taking a tax loss while not actually divesting themselves of the position except by waiting long enough. You, however, have completely divested yourself of the position. If you do the transactions over separate years the reporting doesn't even up until the second tax return.
Intent does not the rule make, but rather the law. My point being you're better off going through each step as suggested here than thinking about the intent.

In particular in this case, note that the purchases were made in a Roth IRA, so the loss is lost forever to the extent that 100 shares of VFIAX are substantially similar to and an equivalent of larger number of shares compared to 400 shares of VOO.

If instead all transactions were in taxable accounts, the final gain and loss would be equal to there being no wash sale, even though there still would be one.
student
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Re: Wash sale situation

Post by student »

usindus2022 wrote: Sat Aug 13, 2022 1:54 pm I need some help in figuring out if I have a wash sale in the end.

Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA

VFIAX and VOO are substantially identical.

Tran #3 is a wash sale situation because Tran #2 took place within 30 days of Tran #3 (a loss).
However, because I sold Tran #2 shares on 8/12/2022 (Tran #4) I no longer own the replacement shares. In this scenario, do I still have a wash sale or it is no longer a wash sale because I sold replacement shares within the same tax year?

Thanks,
You still have a wash sale and the loss on the replacement sales is lost forever.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

usindus2022 wrote: Sat Aug 13, 2022 1:54 pm Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA
You can claim the loss on 300 shares of VOO. The loss on the other 100 shares is permanently disallowed.

If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. But as soon as you sold VOO for a loss, while having acquired replacement shares within the wash sale window and still owning those shares, you created a wash sale. You can't undo that by later selling the shares.

If you had purchased the VFIAX shares in a taxable account, you would still have had a wash sale, but you would have recovered the loss on the 100 shares once you sold VFIAX on 8/12 because the basis of those shares would have been adjusted upwards by the amount of the disallowed loss. Taxation of shares in a tax-advantaged account does not depend on their basis, i.e. it is meaningless in regards to taxes.
Topic Author
usindus2022
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Re: Wash sale situation

Post by usindus2022 »

Thank you for providing clarity. The critical mistake (and a lesson learned) I made here is that the purchase is in a Roth IRA account, not a taxable account so I can’t claim the loss anymore.

In this scenario, how should I go about calculating the wash sale loss for IRS reporting? Tran #3 (VOO) is a wash sale against Tran #2 (VFIAX). NAVs of VOO and VFIAX are close so for simplicity (I hope) I can assume 1 share of VOO = 1 share of VFIAX. With that assumption, I should forgo loss on 100 shares of VOO (part of Tran #3) since Tran #2 is 100 shares of VFIAX.
shess
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Re: Wash sale situation

Post by shess »

usindus2022 wrote: Sat Aug 13, 2022 1:54 pm I need some help in figuring out if I have a wash sale in the end.

Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA

VFIAX and VOO are substantially identical.

Tran #3 is a wash sale situation because Tran #2 took place within 30 days of Tran #3 (a loss).
However, because I sold Tran #2 shares on 8/12/2022 (Tran #4) I no longer own the replacement shares. In this scenario, do I still have a wash sale or it is no longer a wash sale because I sold replacement shares within the same tax year?
If this happened all in taxable accounts, then the wash sale would have caused a basis adjustment on transaction #2's lot, which would have been recovered on transaction #4. In this case, the math works out the same as if the wash sale hadn't happened, but that doesn't mean that the wash sale did not happen, because there are multiple sequences of mathematical operations which end up at the same endpoint.

In your case, the replacement shares are in an IRA, which does not have a tax basis to consider. So you have no way to propagate the basis adjustment to the replacement shares, and thus you have no way to recover the basis adjustment when you sell the replacement shares, because the tax treatment of transaction #4 is identical regardless of any wash sales.
student
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Re: Wash sale situation

Post by student »

usindus2022 wrote: Sat Aug 13, 2022 7:44 pm Thank you for providing clarity. The critical mistake (and a lesson learned) I made here is that the purchase is in a Roth IRA account, not a taxable account so I can’t claim the loss anymore.

In this scenario, how should I go about calculating the wash sale loss for IRS reporting? Tran #3 (VOO) is a wash sale against Tran #2 (VFIAX). NAVs of VOO and VFIAX are close so for simplicity (I hope) I can assume 1 share of VOO = 1 share of VFIAX. With that assumption, I should forgo loss on 100 shares of VOO (part of Tran #3) since Tran #2 is 100 shares of VFIAX.
Don't feel bad. Many people made such a mistake before. I did.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
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retiredjg
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Re: Wash sale situation

Post by retiredjg »

rkhusky wrote: Sat Aug 13, 2022 7:38 pm
usindus2022 wrote: Sat Aug 13, 2022 1:54 pm Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA
You can claim the loss on 300 shares of VOO. The loss on the other 100 shares is permanently disallowed.
No experience with this myself...but I think a wash sale is computed in dollars instead of shares. 100 shares of VFIAX is not the same number of dollars as 100 shares of VOO.

I recall this from a thread awhile back but can't help with the details.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

retiredjg wrote: Sun Aug 14, 2022 7:13 am
rkhusky wrote: Sat Aug 13, 2022 7:38 pm
usindus2022 wrote: Sat Aug 13, 2022 1:54 pm Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account
Tran #2: 2/9/2022 | Bought 100 shares of VFIAX in Roth IRA
Tran #3: 2/23/2022 | Sold 400 shares of VOO in a taxable account at a loss
Tran #4: 8/12/2022 | Sold 100 shares of VFIAX in Roth IRA
You can claim the loss on 300 shares of VOO. The loss on the other 100 shares is permanently disallowed.
No experience with this myself...but I think a wash sale is computed in dollars instead of shares. 100 shares of VFIAX is not the same number of dollars as 100 shares of VOO.

I recall this from a thread awhile back but can't help with the details.
You first determine which shares are washed and then you report the wash sale in dollars. Since the share prices of VFIAX and VOO are different, there is a slight correction to be made.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Sat Aug 13, 2022 8:22 pm
rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
I have never seen any different guidance from a tax professional. Perhaps they have had IRS training on the practical calculation of wash sales. If you've seen other published guidance, I would be interested to see it.
Last edited by rkhusky on Sun Aug 14, 2022 8:32 am, edited 1 time in total.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

usindus2022 wrote: Sat Aug 13, 2022 7:44 pm Thank you for providing clarity. The critical mistake (and a lesson learned) I made here is that the purchase is in a Roth IRA account, not a taxable account so I can’t claim the loss anymore.

In this scenario, how should I go about calculating the wash sale loss for IRS reporting? Tran #3 (VOO) is a wash sale against Tran #2 (VFIAX). NAVs of VOO and VFIAX are close so for simplicity (I hope) I can assume 1 share of VOO = 1 share of VFIAX. With that assumption, I should forgo loss on 100 shares of VOO (part of Tran #3) since Tran #2 is 100 shares of VFIAX.
They are quite close, but if you want to be exact (and for future reference), the number of shares of VOO disallowed would be (price of VFIAX/price of VOO)*100. Use the prices from 2/23.
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retiredjg
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Re: Wash sale situation

Post by retiredjg »

rkhusky wrote: Sun Aug 14, 2022 8:25 am
AnEngineer wrote: Sat Aug 13, 2022 8:22 pm
rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
I have never seen any different guidance from a tax professional. Perhaps they have had IRS training on the practical calculation of wash sales. If you've seen other published guidance, I would be interested to see it.
I'd be interested as well.

rkhusky's thinking makes the most sense to me since the other shares in taxable were not bought within the 30 day window before the sale. However, we all know that tax law does not always make sense.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Sun Aug 14, 2022 8:25 am
AnEngineer wrote: Sat Aug 13, 2022 8:22 pm
rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
I have never seen any different guidance from a tax professional. Perhaps they have had IRS training on the practical calculation of wash sales. If you've seen other published guidance, I would be interested to see it.
I haven't seen any published guidance related to this kind of scenario. My view is based on applying the normal wash sale rules and I know of no exception that would allow you to ignore the wash sale rule when the purchased shares get sold before the wash sale. If you have any guidance that explains the reason for your position that would be helpful.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

retiredjg wrote: Sun Aug 14, 2022 9:00 am rkhusky's thinking makes the most sense to me since the other shares in taxable were not bought within the 30 day window before the sale. ...
What do you mean? What other shares? The purchase of shares outside the 61 day window doesn't matter for wash sales.
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retiredjg
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Re: Wash sale situation

Post by retiredjg »

AnEngineer wrote: Sun Aug 14, 2022 12:31 pm
retiredjg wrote: Sun Aug 14, 2022 9:00 am rkhusky's thinking makes the most sense to me since the other shares in taxable were not bought within the 30 day window before the sale. ...
What do you mean? What other shares? The purchase of shares outside the 61 day window doesn't matter for wash sales.
By "other shares" I mean the Tran #1: 1/3/2022 | Bought 400 shares of VOO in a taxable account. There is nothing else that could be considered "replacement shares" for the shares sold on 2/23/22.

And I agree, they were purchased outside the window.

I thought your point was that any shares still held would be considered "replacement shares". Maybe I have mis-interpreted your comments.

But since this is not a topic that applies to our original poster, maybe carrying this further is best avoided. :happy
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usindus2022
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Re: Wash sale situation

Post by usindus2022 »

I appreciate the responses here. Now I know how to take care of my situation. Beyond that, a couple of takeaways for me (and hopefully it can help others),

(1) If you are selling any security, for a loss, in a taxable account, check if you have bought a substantially similar security (including any dividend reinvestment) in the previous 30 days across all accounts (taxable, IRAs, 401K though IRS has not been clear about 401Ks) including your spouse’s accounts.

(2) If yes, before selling, realize that you will either defer the loss (if the purchase was in a taxable account), or lose it forever (if the purchase was in a non-taxable account). Please use the formula from rkhusky in this thread for the wash sale calculation.

(3) Also, be conscious of any purchase within 30 days following #1 as it will result in the same treatment as #2

Best,
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Sun Aug 14, 2022 12:28 pm
rkhusky wrote: Sun Aug 14, 2022 8:25 am
AnEngineer wrote: Sat Aug 13, 2022 8:22 pm
rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
I have never seen any different guidance from a tax professional. Perhaps they have had IRS training on the practical calculation of wash sales. If you've seen other published guidance, I would be interested to see it.
I haven't seen any published guidance related to this kind of scenario. My view is based on applying the normal wash sale rules and I know of no exception that would allow you to ignore the wash sale rule when the purchased shares get sold before the wash sale. If you have any guidance that explains the reason for your position that would be helpful.
A common reference for wash sales is found on the Fairmark site:
https://fairmark.com/investment-taxatio ... gain/wash/

In particular, the following page provides some examples of using the replacement share concept to determine wash sales.
https://fairmark.com/investment-taxatio ... ent-stock/

Although the page doesn't provide the specific example discussed here (old shares held, buy new shares, sell new shares, sell old shares at a loss within 30 days of buying new shares), it is clear that the new shares are not replacement shares for the old shares since they were sold before the old shares were sold.

If the criteria for a wash sale were simply that shares were purchased within +-30 days of selling for a loss, then examples 1 and 2 on that page would also be wash sales, which the author says are not.
placeholder
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Re: Wash sale situation

Post by placeholder »

The theory seems to be that the basis still transfers to the shares in roth even though that basis adjustment is useless so by ridding the roth of the shares that would cause a wash before the sale in taxable there is no wash because the basis couldn't transfer but I doubt you find that written out by the irs anywhere.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Sun Aug 14, 2022 10:09 pm
AnEngineer wrote: Sun Aug 14, 2022 12:28 pm
rkhusky wrote: Sun Aug 14, 2022 8:25 am
AnEngineer wrote: Sat Aug 13, 2022 8:22 pm
rkhusky wrote: Sat Aug 13, 2022 7:38 pm ...
If you had sold the 100 shares of VFIAX before 2/23, you could have avoided the partial wash sale. ...
I just want to note that I know of no legal basis for this position. I think we discussed this before and we don't have to get into it if you don't want to.
I have never seen any different guidance from a tax professional. Perhaps they have had IRS training on the practical calculation of wash sales. If you've seen other published guidance, I would be interested to see it.
I haven't seen any published guidance related to this kind of scenario. My view is based on applying the normal wash sale rules and I know of no exception that would allow you to ignore the wash sale rule when the purchased shares get sold before the wash sale. If you have any guidance that explains the reason for your position that would be helpful.
A common reference for wash sales is found on the Fairmark site:
https://fairmark.com/investment-taxatio ... gain/wash/

In particular, the following page provides some examples of using the replacement share concept to determine wash sales.
https://fairmark.com/investment-taxatio ... ent-stock/

Although the page doesn't provide the specific example discussed here (old shares held, buy new shares, sell new shares, sell old shares at a loss within 30 days of buying new shares), it is clear that the new shares are not replacement shares for the old shares since they were sold before the old shares were sold.

If the criteria for a wash sale were simply that shares were purchased within +-30 days of selling for a loss, then examples 1 and 2 on that page would also be wash sales, which the author says are not.
Thanks, but that's missing the key ingredient I'm looking for: the reason why. It uses the concept of replacement shares, but as that is not the law, it is useful only as an explanatory or memory tool, like a mnemonic, rather than the actual reason. The first two examples you reference are not wash sales for other reasons. The criteria is not solely what you state, but rather what you state with exceptions. Furthermore, the conceptual tool of replacement shares is undercut by example 5, where it gives a different answer than the IRS.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

placeholder wrote: Mon Aug 15, 2022 5:01 am The theory seems to be that the basis still transfers to the shares in roth even though that basis adjustment is useless so by ridding the roth of the shares that would cause a wash before the sale in taxable there is no wash because the basis couldn't transfer but I doubt you find that written out by the irs anywhere.
Shares in an IRA have no concept of basis, though, right?
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Mon Aug 15, 2022 6:33 am Thanks, but that's missing the key ingredient I'm looking for: the reason why. It uses the concept of replacement shares, but as that is not the law, it is useful only as an explanatory or memory tool, like a mnemonic, rather than the actual reason. The first two examples you reference are not wash sales for other reasons. The criteria is not solely what you state, but rather what you state with exceptions. Furthermore, the conceptual tool of replacement shares is undercut by example 5, where it gives a different answer than the IRS.
I provided a published opinion from a tax expert. Do you have a contrary published opinion from a tax expert?

As far as exceptions, I don't see any exceptions in the law. Do you have a published list of the exceptions, particularly that would say that Example 2 is not a wash sale?
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Mon Aug 15, 2022 6:34 am
placeholder wrote: Mon Aug 15, 2022 5:01 am The theory seems to be that the basis still transfers to the shares in roth even though that basis adjustment is useless so by ridding the roth of the shares that would cause a wash before the sale in taxable there is no wash because the basis couldn't transfer but I doubt you find that written out by the irs anywhere.
Shares in an IRA have no concept of basis, though, right?
Shares in an IRA have a basis, but it has no impact on taxation.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Mon Aug 15, 2022 8:15 am
AnEngineer wrote: Mon Aug 15, 2022 6:33 am Thanks, but that's missing the key ingredient I'm looking for: the reason why. It uses the concept of replacement shares, but as that is not the law, it is useful only as an explanatory or memory tool, like a mnemonic, rather than the actual reason. The first two examples you reference are not wash sales for other reasons. The criteria is not solely what you state, but rather what you state with exceptions. Furthermore, the conceptual tool of replacement shares is undercut by example 5, where it gives a different answer than the IRS.
I provided a published opinion from a tax expert. Do you have a contrary published opinion from a tax expert?
As I pointed out, what you provided admits to disagreeing with the IRS, which has actual authority here. I'm looking for the reason for the opinion.
As far as exceptions, I don't see any exceptions in the law. Do you have a published list of the exceptions, particularly that would say that Example 2 is not a wash sale?
Revenue ruling 56-602 created the exception for example 2.
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Mon Aug 15, 2022 4:05 pm I'm looking for the reason for the opinion.
The purpose of the wash sale rule is to prevent taxpayers from claiming losses on their taxes, while not changing their economic position (purely paper losses).

The IRS is only interested in preventing the claiming of purely paper losses. So, additional guidance is provided to weed out situations where the taxpayer may appear to technically violate the written statute, but where the taxpayer has changed their economic position and is not claiming only paper losses.

The case of <old shares held, buy new shares, sell new shares, sell old shares at a loss within 30 days of buying new shares> fits that description. As does the case of <buy 200 shares in one order and then sell 100 shares for a loss within 30 days>.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Mon Aug 15, 2022 8:33 pm
AnEngineer wrote: Mon Aug 15, 2022 4:05 pm I'm looking for the reason for the opinion.
The purpose of the wash sale rule is to prevent taxpayers from claiming losses on their taxes, while not changing their economic position (purely paper losses).
So your position is that the purpose of the law overrides the actual law?
The IRS is only interested in preventing the claiming of purely paper losses. ...
Have they bound themselves to be constrained by this?
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Re: Wash sale situation

Post by placeholder »

AnEngineer wrote: Mon Aug 15, 2022 9:12 pm
So your position is that the purpose of the law overrides the actual law?
That's a legitimate concern but I don't see that you have demonstrated that the law reads the way you say.
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Re: Wash sale situation

Post by AnEngineer »

placeholder wrote: Mon Aug 15, 2022 9:17 pm
AnEngineer wrote: Mon Aug 15, 2022 9:12 pm
So your position is that the purpose of the law overrides the actual law?
That's a legitimate concern but I don't see that you have demonstrated that the law reads the way you say.
Mine is a plain reading of the basic wash sale rule, do you disagree? Did you buy other shares the 61 day window starting 30 days before the sale at a loss? Yes, in the scenario we're talking about.

There must be some exception to back a claim that selling of the so-called replacement shares before the sale at a loss prevents it being a wash sale.
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Re: Wash sale situation

Post by placeholder »

Let's look at the situation in all taxable:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot a on 8/15 for no loss (even or gain).
4. See lot b on 8/20 for a loss.

Is there a wash sale on 8/20 and if so which shares had the basis adjusted?
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Mon Aug 15, 2022 9:12 pm So your position is that the purpose of the law overrides the actual law?
Isn't that what the IRS did with Revenue Ruling 56-602? The IRS doesn't make the law. The case of <buy 200 shares in one order and then sell 100 shares for a loss within 30 days> clearly violates the actual text of the wash sale law, but does not violate Congressional Intent in creating the wash sale law. In fact, the case of <buy 100 shares and sell 100 shares for a loss within 30 days> also violates the text of the wash sale law. The IRS is more concerned with Congressional Intent than with the actual text of the law.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Mon Aug 15, 2022 9:35 pm
AnEngineer wrote: Mon Aug 15, 2022 9:12 pm So your position is that the purpose of the law overrides the actual law?
Isn't that what the IRS did with Revenue Ruling 56-602? The IRS doesn't make the law.
No, it is empowered to make such rulings. It also could have ruled that while it may seem silly that's the law so accept it or change it.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

placeholder wrote: Mon Aug 15, 2022 9:28 pm Let's look at the situation in all taxable:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot a on 8/15 for no loss (even or gain).
4. See lot b on 8/20 for a loss.

Is there a wash sale on 8/20 and if so which shares had the basis adjusted?
No, though this is a very good example here and I don't know the precise reason. I think a similar case that gets at the same issue is if only lot a was in the picture. That is, can shares wash themselves? I think the answer must be no because it doesn't work. That is, what would be the gain or loss on the sale? If loss is disallowed then the basis is adjusted to give it a loss again. This has probably been addressed a long time ago, though I don't know where.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 6:49 am
rkhusky wrote: Mon Aug 15, 2022 9:35 pm
AnEngineer wrote: Mon Aug 15, 2022 9:12 pm So your position is that the purpose of the law overrides the actual law?
Isn't that what the IRS did with Revenue Ruling 56-602? The IRS doesn't make the law.
No, it is empowered to make such rulings. It also could have ruled that while it may seem silly that's the law so accept it or change it.
The IRS is empowered to interpret the laws with regards to Congressional Intent. And the courts can (and have) overrule the IRS if the courts decide that the IRS interpretation is not consistent with Congressional intent.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 6:55 am
placeholder wrote: Mon Aug 15, 2022 9:28 pm Let's look at the situation in all taxable:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot a on 8/15 for no loss (even or gain).
4. See lot b on 8/20 for a loss.

Is there a wash sale on 8/20 and if so which shares had the basis adjusted?
No, though this is a very good example here and I don't know the precise reason. I think a similar case that gets at the same issue is if only lot a was in the picture. That is, can shares wash themselves? I think the answer must be no because it doesn't work. That is, what would be the gain or loss on the sale? If loss is disallowed then the basis is adjusted to give it a loss again. This has probably been addressed a long time ago, though I don't know where.
And this sequence is no different:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot b on 8/15 for no loss (even or gain).
4. See lot a on 8/20 for a loss.

In both cases, the taxpayer owns no replacement shares when the sale for a loss occurs.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 9:11 am
AnEngineer wrote: Tue Aug 16, 2022 6:49 am
rkhusky wrote: Mon Aug 15, 2022 9:35 pm
AnEngineer wrote: Mon Aug 15, 2022 9:12 pm So your position is that the purpose of the law overrides the actual law?
Isn't that what the IRS did with Revenue Ruling 56-602? The IRS doesn't make the law.
No, it is empowered to make such rulings. It also could have ruled that while it may seem silly that's the law so accept it or change it.
The IRS is empowered to interpret the laws with regards to Congressional Intent. And the courts can (and have) overrule the IRS if the courts decide that the IRS interpretation is not consistent with Congressional intent.
That may be, but how is this intent determined? Unless it is set in stone now, it doesn't resolve this situation.

Edit: I think it's a reasonable position that eventually the IRS or a court would rule that such a scenario is exempted from the wash sale rule because it doesn't align with the intent of the law. Unfortunately, until that matter is settled, individuals are in the position of possibly having to fight (at their own expense) for it to become settled.
Last edited by AnEngineer on Tue Aug 16, 2022 10:46 am, edited 1 time in total.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 9:13 am
AnEngineer wrote: Tue Aug 16, 2022 6:55 am
placeholder wrote: Mon Aug 15, 2022 9:28 pm Let's look at the situation in all taxable:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot a on 8/15 for no loss (even or gain).
4. See lot b on 8/20 for a loss.

Is there a wash sale on 8/20 and if so which shares had the basis adjusted?
No, though this is a very good example here and I don't know the precise reason. I think a similar case that gets at the same issue is if only lot a was in the picture. That is, can shares wash themselves? I think the answer must be no because it doesn't work. That is, what would be the gain or loss on the sale? If loss is disallowed then the basis is adjusted to give it a loss again. This has probably been addressed a long time ago, though I don't know where.
And this sequence is no different:

1. Buy vti on 8/1 (lot a).
2. Buy vti on 8/10 (lot b).
3. Sell lot b on 8/15 for no loss (even or gain).
4. See lot a on 8/20 for a loss.

In both cases, the taxpayer owns no replacement shares when the sale for a loss occurs.
Sorry, I somehow misread placeholder's example and thought that (3) was at a loss. My revised response is that yes there is a wash sale on 8/20 in that example and the shares in lot a have the basis adjusted. Your sequence is indeed no different.
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retiredjg
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Re: Wash sale situation

Post by retiredjg »

usindus2022, it is unfortunate that your thread has been hijacked. :( However, I think everybody agrees that you have a wash sale.

The rest of the discussion is a theoretical discussion about something that might (or might not) have avoided the wash sale. But since you didn't do it, it does not matter for your original question. This happens sometimes.

Really folks...maybe we should try harder to avoid hijacking a new poster's first post, don' you think?
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 9:54 am That may be, but how is this intent determined? Unless it is set in stone now, it doesn't resolve this situation.

Edit: I think it's a reasonable position that eventually the IRS or a court would rule that such a scenario is exempted from the wash sale rule because it doesn't align with the intent of the law. Unfortunately, until that matter is settled, individuals are in the position of possibly having to fight (at their own expense) for it to become settled.
So, what was the reasoning behind Revenue Ruling 56-602? Why did the IRS decide to issue a ruling that appears to be a clear violation of the text of the wash sale law?
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 9:56 am Sorry, I somehow misread placeholder's example and thought that (3) was at a loss. My revised response is that yes there is a wash sale on 8/20 in that example and the shares in lot a have the basis adjusted. Your sequence is indeed no different.
So, your understanding is that you can adjust the basis of things you no longer own? The wash sale occurs on 8/20, which is when the basis adjustment would occur. You don't own the lot-a shares on 8/20 in the original example or the lot-b shares in the second example.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 11:25 am
AnEngineer wrote: Tue Aug 16, 2022 9:54 am That may be, but how is this intent determined? Unless it is set in stone now, it doesn't resolve this situation.

Edit: I think it's a reasonable position that eventually the IRS or a court would rule that such a scenario is exempted from the wash sale rule because it doesn't align with the intent of the law. Unfortunately, until that matter is settled, individuals are in the position of possibly having to fight (at their own expense) for it to become settled.
So, what was the reasoning behind Revenue Ruling 56-602? Why did the IRS decide to issue a ruling that appears to be a clear violation of the text of the wash sale law?
For the same kind of intent reasons that you are using here. Just as in the IRA ruling, it is clear that it does not apply to other circumstances, although a ruling on another similar matter may be likely to be decided similarly.
Last edited by AnEngineer on Tue Aug 16, 2022 11:40 am, edited 1 time in total.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 11:30 am
AnEngineer wrote: Tue Aug 16, 2022 9:56 am Sorry, I somehow misread placeholder's example and thought that (3) was at a loss. My revised response is that yes there is a wash sale on 8/20 in that example and the shares in lot a have the basis adjusted. Your sequence is indeed no different.
So, your understanding is that you can adjust the basis of things you no longer own? The wash sale occurs on 8/20, which is when the basis adjustment would occur. You don't own the lot-a shares on 8/20 in the original example or the lot-b shares in the second example.
Yes, why not? It's a sort of mirror to when you have a wash sale caused by a purchase after a loss sale. At the moment of the sale, you have a deductible loss. But later after the new purchase, that loss is adjusted to be zero.
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 11:35 am
rkhusky wrote: Tue Aug 16, 2022 11:25 am
AnEngineer wrote: Tue Aug 16, 2022 9:54 am That may be, but how is this intent determined? Unless it is set in stone now, it doesn't resolve this situation.

Edit: I think it's a reasonable position that eventually the IRS or a court would rule that such a scenario is exempted from the wash sale rule because it doesn't align with the intent of the law. Unfortunately, until that matter is settled, individuals are in the position of possibly having to fight (at their own expense) for it to become settled.
So, what was the reasoning behind Revenue Ruling 56-602? Why did the IRS decide to issue a ruling that appears to be a clear violation of the text of the wash sale law?
For the same kind of intent reasons that you are using here. Just as in the IRA ruling, it is clear that it does not apply to other circumstances, although a ruling on another similar matter may be likely to be decided similarly.
Why would the reasoning not apply to other situations?
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 11:39 am
rkhusky wrote: Tue Aug 16, 2022 11:30 am
AnEngineer wrote: Tue Aug 16, 2022 9:56 am Sorry, I somehow misread placeholder's example and thought that (3) was at a loss. My revised response is that yes there is a wash sale on 8/20 in that example and the shares in lot a have the basis adjusted. Your sequence is indeed no different.
So, your understanding is that you can adjust the basis of things you no longer own? The wash sale occurs on 8/20, which is when the basis adjustment would occur. You don't own the lot-a shares on 8/20 in the original example or the lot-b shares in the second example.
Yes, why not? It's a sort of mirror to when you have a wash sale caused by a purchase after a loss sale. At the moment of the sale, you have a deductible loss. But later after the new purchase, that loss is adjusted to be zero.
No, the loss remains. The taxpayer just cannot claim the loss on their taxes. And the basis of the replacement shares, which the taxpayer still owns, is increased by the amount of the disallowed loss.

If I sell my house to my daughter and then later make some improvements on it for her, can I go back and adjust the cost basis of the house in order to lower my cap gain taxes? I think not.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 12:09 pm
AnEngineer wrote: Tue Aug 16, 2022 11:39 am
rkhusky wrote: Tue Aug 16, 2022 11:30 am
AnEngineer wrote: Tue Aug 16, 2022 9:56 am Sorry, I somehow misread placeholder's example and thought that (3) was at a loss. My revised response is that yes there is a wash sale on 8/20 in that example and the shares in lot a have the basis adjusted. Your sequence is indeed no different.
So, your understanding is that you can adjust the basis of things you no longer own? The wash sale occurs on 8/20, which is when the basis adjustment would occur. You don't own the lot-a shares on 8/20 in the original example or the lot-b shares in the second example.
Yes, why not? It's a sort of mirror to when you have a wash sale caused by a purchase after a loss sale. At the moment of the sale, you have a deductible loss. But later after the new purchase, that loss is adjusted to be zero.
No, the loss remains. The taxpayer just cannot claim the loss on their taxes. And the basis of the replacement shares, which the taxpayer still owns, is increased by the amount of the disallowed loss.

If I sell my house to my daughter and then later make some improvements on it for her, can I go back and adjust the cost basis of the house in order to lower my cap gain taxes? I think not.
In the case of shares already sold I don't see why you can't adjust the basis as that's what the law tells you to do. I think my comparison is a distraction, so my question remains: why not?
Last edited by AnEngineer on Tue Aug 16, 2022 12:37 pm, edited 1 time in total.
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 12:06 pm
AnEngineer wrote: Tue Aug 16, 2022 11:35 am
rkhusky wrote: Tue Aug 16, 2022 11:25 am
AnEngineer wrote: Tue Aug 16, 2022 9:54 am That may be, but how is this intent determined? Unless it is set in stone now, it doesn't resolve this situation.

Edit: I think it's a reasonable position that eventually the IRS or a court would rule that such a scenario is exempted from the wash sale rule because it doesn't align with the intent of the law. Unfortunately, until that matter is settled, individuals are in the position of possibly having to fight (at their own expense) for it to become settled.
So, what was the reasoning behind Revenue Ruling 56-602? Why did the IRS decide to issue a ruling that appears to be a clear violation of the text of the wash sale law?
For the same kind of intent reasons that you are using here. Just as in the IRA ruling, it is clear that it does not apply to other circumstances, although a ruling on another similar matter may be likely to be decided similarly.
Why would the reasoning not apply to other situations?
I'm not saying that the reasoning doesn't apply. I'm saying the rulings are narrow and only apply to the situations they ruled on. You can expect that they would rule correspondingly using the same reasoning, but they haven't actually done it yet.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 12:34 pm In the case of shares already sold I don't see why you can't adjust the basis as that's what the law tells you to do.
Implicit in the directions from the law is that you still own the shares.
rkhusky
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Re: Wash sale situation

Post by rkhusky »

AnEngineer wrote: Tue Aug 16, 2022 12:36 pm I'm not saying that the reasoning doesn't apply. I'm saying the rulings are narrow and only apply to the situations they ruled on. You can expect that they would rule correspondingly using the same reasoning, but they haven't actually done it yet.
The ruling might be narrow, if it specifically says that it is. But the reasoning is only narrow if the ruling says so, i.e. the ruling should say that this line of reasoning applies only to this specific situation. Otherwise, the reasoning applies to any other similar situation, i.e. wash sale transactions.
AnEngineer
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Re: Wash sale situation

Post by AnEngineer »

rkhusky wrote: Tue Aug 16, 2022 1:30 pm
AnEngineer wrote: Tue Aug 16, 2022 12:36 pm I'm not saying that the reasoning doesn't apply. I'm saying the rulings are narrow and only apply to the situations they ruled on. You can expect that they would rule correspondingly using the same reasoning, but they haven't actually done it yet.
The ruling might be narrow, if it specifically says that it is. But the reasoning is only narrow if the ruling says so, i.e. the ruling should say that this line of reasoning applies only to this specific situation. Otherwise, the reasoning applies to any other similar situation, i.e. wash sale transactions.
Hmm, this ruling doesn't have the wording I'm thinking of (as in 2008-5: "This ruling does not address any issues other than those specifically addressed herein.") But the IRS website does say: "A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts." Note that I'm not disputing that the same reasoning would be used to reach the conclusion you are at, only that such a conclusion has already been reached under the law.
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