Wash sale

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tACKJAYE
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Wash sale

Post by tACKJAYE »

Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred. However, based on the tax forms I receive I don't usually see any 1099-B, 1099-Div, 1099-INT, etc. issued for retirement accounts. That being said, how does then it gets determined if the loss is allowed or disallowed when the transaction is across the taxable and tax-deferred account? For example - if you sell META at a loss in a taxable account and have a buy transaction for META in a tax-deferred account, how would it be determined that it was a wash sale? 
student
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Re: Wash sale

Post by student »

You have to keep track of this yourself if you have affected accounts. For example, a taxable account at brokerage 1 and an IRA account at brokerage 2. Actually I think even if you have a taxable account and an IRA account at the same brokerage, you will probably have to keep track of wash sale yourself if it is between accounts.
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retiredjg
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Re: Wash sale

Post by retiredjg »

You have to keep up with this yourself.

In this case, you would try to avoid any purchase of META (including reinvestment of dividends) 30 days before the sale in taxable and 30 days after the sale in taxable.

If you don't avoid such a purchase, there is a wash sale and you do not get to take the full value of the loss off your taxes.
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tACKJAYE
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Re: Wash sale

Post by tACKJAYE »

Thank you for your quick response. I understand that one should, but let's say I missed keeping a record of it and claimed the loss in my tax return, how uncle sam would determine it?
retiredjg wrote: Thu Jun 01, 2023 9:29 am You have to keep up with this yourself.

In this case, you would try to avoid any purchase of META (including reinvestment of dividends) 30 days before the sale in taxable and 30 days after the sale in taxable.

If you don't avoid such a purchase, there is a wash sale and you do not get to take the full value of the loss off your taxes.
student
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Re: Wash sale

Post by student »

tACKJAYE wrote: Thu Jun 01, 2023 10:24 am Thank you for your quick response. I understand that one should, but let's say I missed keeping a record of it and claimed the loss in my tax return, how uncle sam would determine it?
retiredjg wrote: Thu Jun 01, 2023 9:29 am You have to keep up with this yourself.

In this case, you would try to avoid any purchase of META (including reinvestment of dividends) 30 days before the sale in taxable and 30 days after the sale in taxable.

If you don't avoid such a purchase, there is a wash sale and you do not get to take the full value of the loss off your taxes.
You need to file your tax return according to the law. For example, your bank may not issue 1099-INT if the interest is below $10 but you still have to include the amount in your tax filing. (The only exception that I am aware of if the amount is less than 50 cents, then it rounds to 0, if one chooses to round throughout the tax return.) I don't think missing record is a valid excuse especially most brokerage firms have many years of records. This is a case when the government relies on you to report it accurately.
Last edited by student on Thu Jun 01, 2023 12:27 pm, edited 1 time in total.
increment
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Re: Wash sale

Post by increment »

tACKJAYE wrote: Thu Jun 01, 2023 10:24 am I understand that one should, but let's say I missed keeping a record of it and claimed the loss in my tax return, how uncle sam would determine it?
In the case of an audit, I doubt that you will get things your way if your response is "I can't document my transactions since I failed to keep records."
rkhusky
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Re: Wash sale

Post by rkhusky »

tACKJAYE wrote: Thu Jun 01, 2023 10:24 am Thank you for your quick response. I understand that one should, but let's say I missed keeping a record of it and claimed the loss in my tax return, how uncle sam would determine it?
Same way if you forgot to record the $1000 in cash that you got paid under the table for some work or the $500 profit you forgot to record selling some old books.
alex_686
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Re: Wash sale

Post by alex_686 »

There is a difference between "reportable transactions" and "taxable transactions".

Consider the case where you sold some stock at Broker X and then bought it back again at Broker Y. There is no way that the brokers could send out a correct 1099 showing the wash sale.

The rules on "reportable transactions" are strict and clear, so they can be programed into a computer. No nuance or subtle - just clear-cut black and white stuff.

On the other hand, you are responsible for self-reporting your taxable transactions.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
kalarama
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Re: Wash sale

Post by kalarama »

Holding the same security between taxable and IRA can be a pain to track tax loss, especially if dividend involved as well. I'm slowly backing out of that so I don't have to deal with that going forward. The worst part is that you could lose tax loss forever if you purchase security in an IRA and sell for loss in taxable.
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retiredjg
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Re: Wash sale

Post by retiredjg »

tACKJAYE wrote: Thu Jun 01, 2023 10:24 am Thank you for your quick response. I understand that one should, but let's say I missed keeping a record of it and claimed the loss in my tax return, how uncle sam would determine it?
retiredjg wrote: Thu Jun 01, 2023 9:29 am You have to keep up with this yourself.

In this case, you would try to avoid any purchase of META (including reinvestment of dividends) 30 days before the sale in taxable and 30 days after the sale in taxable.

If you don't avoid such a purchase, there is a wash sale and you do not get to take the full value of the loss off your taxes.
This is how I imagine it would go. You might "get away with it". You might not get away with it and have to pay not only the correct tax but also a penalty.

There is a difference between making a mistake and getting caught trying to get away with something.

Mistakes cause taxes plus penalty. They don't just say "don't do that again".

Getting caught on the sleazy side means you could be subjected to an intense and excruciating audit and all kinds of borderline things could come into play over several years' tax returns.

You know to watch for wash sales. Either watch for them and do your taxes right or avoid them in some way. I choose to avoid, but that's just my preference.
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Nate79
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Re: Wash sale

Post by Nate79 »

tACKJAYE wrote: Thu Jun 01, 2023 8:56 am Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred. However, based on the tax forms I receive I don't usually see any 1099-B, 1099-Div, 1099-INT, etc. issued for retirement accounts. That being said, how does then it gets determined if the loss is allowed or disallowed when the transaction is across the taxable and tax-deferred account? For example - if you sell META at a loss in a taxable account and have a buy transaction for META in a tax-deferred account, how would it be determined that it was a wash sale? 
No, not everyone agrees, including the IRS, that you need to account for all accounts to determine wash sales. Your premise is flawed.
alex_686
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Re: Wash sale

Post by alex_686 »

Nate79 wrote: Thu Jun 01, 2023 6:34 pm
tACKJAYE wrote: Thu Jun 01, 2023 8:56 am Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred. However, based on the tax forms I receive I don't usually see any 1099-B, 1099-Div, 1099-INT, etc. issued for retirement accounts. That being said, how does then it gets determined if the loss is allowed or disallowed when the transaction is across the taxable and tax-deferred account? For example - if you sell META at a loss in a taxable account and have a buy transaction for META in a tax-deferred account, how would it be determined that it was a wash sale? 
No, not everyone agrees, including the IRS, that you need to account for all accounts to determine wash sales. Your premise is flawed.
I think you make your case too strongly. There is a fair amount of grey area here. I used to work with this when I was in fund accounting and we had to feel our way through the darkness.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
AnEngineer
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Re: Wash sale

Post by AnEngineer »

Nate79 wrote: Thu Jun 01, 2023 6:34 pm
tACKJAYE wrote: Thu Jun 01, 2023 8:56 am Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred. However, based on the tax forms I receive I don't usually see any 1099-B, 1099-Div, 1099-INT, etc. issued for retirement accounts. That being said, how does then it gets determined if the loss is allowed or disallowed when the transaction is across the taxable and tax-deferred account? For example - if you sell META at a loss in a taxable account and have a buy transaction for META in a tax-deferred account, how would it be determined that it was a wash sale? 
No, not everyone agrees, including the IRS, that you need to account for all accounts to determine wash sales. Your premise is flawed.
Everyone agrees about IRAs.
student
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Re: Wash sale

Post by student »

AnEngineer wrote: Thu Jun 01, 2023 6:55 pm
Nate79 wrote: Thu Jun 01, 2023 6:34 pm
tACKJAYE wrote: Thu Jun 01, 2023 8:56 am Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred. However, based on the tax forms I receive I don't usually see any 1099-B, 1099-Div, 1099-INT, etc. issued for retirement accounts. That being said, how does then it gets determined if the loss is allowed or disallowed when the transaction is across the taxable and tax-deferred account? For example - if you sell META at a loss in a taxable account and have a buy transaction for META in a tax-deferred account, how would it be determined that it was a wash sale? 
No, not everyone agrees, including the IRS, that you need to account for all accounts to determine wash sales. Your premise is flawed.
Everyone agrees about IRAs.
+1.
Topic Author
tACKJAYE
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Re: Wash sale

Post by tACKJAYE »

Thank you all for all the feedback.

I report less than $10 of interest income on my tax returns as well. So understand that even though the IRA brokerage firm doesn't report the transaction, since it has tax implications, it should be reported on the tax returns. On the flip side - is my below assumption correct?

I buy 100 stocks of META on 1/1/2020 at $100 per share in my IRA account.
I sell 100 stocks of META on 1/1/2021 at $50 per share in my IRA account. Loss of 5,000
I buy 100 stocks of META on 1/2/2021 at $50 each in my taxable account. With this does my cost basis become $100 per share and acquired date: 1/1/2020?
Now if I sell 100 stocks of META on 1/3/2021 at $50 each, do I have a long-term loss of 5000 in a taxable account that can be claimed on the tax return?
alex_686 wrote: Thu Jun 01, 2023 12:21 pm There is a difference between "reportable transactions" and "taxable transactions".

Consider the case where you sold some stock at Broker X and then bought it back again at Broker Y. There is no way that the brokers could send out a correct 1099 showing the wash sale.

The rules on "reportable transactions" are strict and clear, so they can be programed into a computer. No nuance or subtle - just clear-cut black and white stuff.

On the other hand, you are responsible for self-reporting your taxable transactions.
increment
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Re: Wash sale

Post by increment »

tACKJAYE wrote: Thu Jun 01, 2023 9:37 pm On the flip side - is my below assumption correct?

I buy 100 stocks of META on 1/1/2020 at $100 per share in my IRA account.
I sell 100 stocks of META on 1/1/2021 at $50 per share in my IRA account. Loss of 5,000
This loss does not affect your taxable income. So there is no capital loss to be "disallowed" by the wash-sale rules. So there is no wash sale, and no adjustment to the basis of any "replacement" shares.
I buy 100 stocks of META on 1/2/2021 at $50 each in my taxable account. With this does my cost basis become $100 per share and acquired date: 1/1/2020?
No, by the reasoning above.
placeholder
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Re: Wash sale

Post by placeholder »

tACKJAYE wrote: Thu Jun 01, 2023 8:56 am Just out of curiosity, I was looking into wash sale rules and have a few questions.

Based on what I read wash sale needs to account for all the accounts i.e. taxable and tax-deferred.
That is a highly debated topic here that you can find many threads discussing but I will tell that I believe that only taxable accounts and iras participate in wash sales.
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retiredjg
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Re: Wash sale

Post by retiredjg »

tACKJAYE wrote: Thu Jun 01, 2023 9:37 pm
I buy 100 stocks of META on 1/1/2020 at $100 per share in my IRA account.
I sell 100 stocks of META on 1/1/2021 at $50 per share in my IRA account. Loss of 5,000
I buy 100 stocks of META on 1/2/2021 at $50 each in my taxable account. With this does my cost basis become $100 per share and acquired date: 1/1/2020?
Now if I sell 100 stocks of META on 1/3/2021 at $50 each, do I have a long-term loss of 5000 in a taxable account that can be claimed on the tax return?
No.

In order to claim a capital loss you must

1. Sell something in your taxable account...

2. ...at a loss.


Losses in IRA may be painful, but they are not capital losses and you cannot take them off your taxes.
rkhusky
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Re: Wash sale

Post by rkhusky »

There is no capital gains tax in a tax-advantaged account, hence the price you paid for shares there is irrelevant in regards to taxation.
Topic Author
tACKJAYE
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Re: Wash sale

Post by tACKJAYE »

Thank y'all for the clarifications!
Count de Monet
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Re: Wash sale

Post by Count de Monet »

Just a couple of days ago, I realized that I'll miss out on a $36 LT capital loss due to having forgotten to turn off dividend reinvestment. :oops: Thankfully, I realized this with < 24 hours before the next dividend and turned off reinvestment. I hope this reminder helps someone.
Roth Conversion Disorder.
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