How can you adjust the basis of shares you don't own?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.
Wash sale situation
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Re: Wash sale situation
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Re: Wash sale situation
This question really perplexes me. Again, why can't you?placeholder wrote: ↑Tue Aug 16, 2022 4:33 pmHow can you adjust the basis of shares you don't own?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.
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Re: Wash sale situation
In pub 550 it says:AnEngineer wrote: ↑Tue Aug 16, 2022 5:17 pmThis question really perplexes me. Again, why can't you?
In the example I have you can't postpone anything until the "new" securities are sold because they have already been sold.If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
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Re: Wash sale situation
I don't see that as anything other than trying to explain the rule in language other than the actual law. IRS publications are not binding. (I also have no conceptual problem with postponing for a negative amount of time in a specific case.)placeholder wrote: ↑Tue Aug 16, 2022 5:25 pmIn pub 550 it says:AnEngineer wrote: ↑Tue Aug 16, 2022 5:17 pmThis question really perplexes me. Again, why can't you?In the example I have you can't postpone anything until the "new" securities are sold because they have already been sold.If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
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Re: Wash sale situation
While true I don't know that you've provided any clear contrary information from the law for this situation but I'm not going to keep arguing when it seems that we aren't interpreting things the same.AnEngineer wrote: ↑Tue Aug 16, 2022 5:58 pm I don't see that as anything other than trying to explain the rule in language other than the actual law. IRS publications are not binding. (I also have no conceptual problem with postponing for a negative amount of time in a specific case.)
Re: Wash sale situation
Perhaps you are missing the principle of causality and the fact that the basis adjustment from the wash sale occurs as of the date of the creation of the wash sale. Plus the fact that the basis of an investment can be different on different days.AnEngineer wrote: ↑Tue Aug 16, 2022 5:17 pmThis question really perplexes me. Again, why can't you?placeholder wrote: ↑Tue Aug 16, 2022 4:33 pmHow can you adjust the basis of shares you don't own?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.
Let's look at some examples:
1. Buy VTI on 8/1 (lot A).
2. Sell lot A on 8/10 for a loss.
3. Buy VTI on 8/20 (lot B).
4. Sell lot B on 8/30 for a gain.
The basis of lot A is determined on 8/1.
The capital loss for lot A is determined by the selling price of lot A on 8/10 and the basis of lot A on 8/10, which is the same as it was on 8/1.
The wash sale is created on 8/20. The basis adjustment of lot B occurs on 8/20.
The capital gain for lot B is determined by the selling price of lot B on 8/30 and the basis of lot B on 8/30, which is the same as it was on 8/20.
1. Buy VTI on 2/1 (lot A).
2. Buy VTI on 8/1 (lot B).
3. Sell lot A on 8/10 for a loss.
4. Sell lot B on 8/30 for a gain.
The basis of lot A is determined on 2/1.
The basis of lot B is determined on 8/1.
The capital loss for lot A is determined by the selling price of lot A on 8/10 and the basis of lot A on 8/10, which is the same as it was on 2/1.
The wash sale is created on 8/10. The basis adjustment of lot B occurs on 8/10. The basis for lot B from 8/1-8/9 is different than it is on 8/10.
The capital gain for lot B is determined by the selling price of lot B on 8/30 and the basis of lot B on 8/30, which is the same as it was on 8/10 (but different than it was on 8/1).
1. Buy VTI on 8/1 (lot A).
2. Buy VTI on 8/10 (lot B).
3. Sell lot A on 8/15 for a gain.
4. Sell lot B on 8/20 for a loss.
The basis of lot A is determined on 8/1.
The basis of lot B is determined on 8/10.
The capital gain for lot A is determined by the selling price of lot A on 8/15 and the basis of lot A on 8/15, which is the same as it was on 8/1.
Anything that occurs after 8/15 does not change the basis of lot A on 8/15 (the principle of causality).
The capital loss for lot B is determined by the selling price of lot B on 8/20 and the basis of lot B on 8/20, which is the same as it was on 8/10.
If the sale of lot B on 8/20 did cause a wash sale (which it doesn't), the basis adjustment of lot A would occur as of 8/20 (when the shares are no longer owned), but the basis of lot A from 8/1 - 8/15 would remain the same.
Since the basis adjustment for lot A cannot happen on or prior to 8/15 (principle of causality), there can be no wash sale.
1. Buy VTI on 8/1 (lot A).
2. Buy VTI on 8/10 (lot B).
3. Sell lot B on 8/15 for a gain.
4. Sell lot A on 8/20 for a loss.
The basis of lot A is determined on 8/1.
The basis of lot B is determined on 8/10.
The capital gain for lot B is determined by the selling price of lot B on 8/15 and the basis of lot B on 8/15, which is the same as it was on 8/10.
Anything that occurs after 8/15 does not change the basis of lot B on 8/15 (the principle of causality).
The capital loss for lot A is determined by the selling price of lot A on 8/20 and the basis of lot A on 8/20, which is the same as it was on 8/1.
If the sale of lot A on 8/20 did cause a wash sale (which it doesn't), the basis adjustment of lot B would occur as of 8/20 (when the shares are no longer owned), but the basis of lot B from 8/10 - 8/15 would remain the same.
Since the basis adjustment for lot B cannot happen on or prior to 8/15 (principle of causality), there can be no wash sale.
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Re: Wash sale situation
Even if I were to grant that you cannot adjust the basis of shares that are already sold, I don't see that that would necessarily avoid the wash sale. Disallowing the loss deduction and adjusting the basis are separate parts of the law.rkhusky wrote: ↑Wed Aug 17, 2022 8:06 amPerhaps you are missing the principle of causality and the fact that the basis adjustment from the wash sale occurs as of the date of the creation of the wash sale. Plus the fact that the basis of an investment can be different on different days.AnEngineer wrote: ↑Tue Aug 16, 2022 5:17 pmThis question really perplexes me. Again, why can't you?placeholder wrote: ↑Tue Aug 16, 2022 4:33 pmHow can you adjust the basis of shares you don't own?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.
...
Since the basis adjustment for lot B cannot happen on or prior to 8/15 (principle of causality), there can be no wash sale.
Re: Wash sale situation
They are linked in the law. Congressional Intent was to only temporarily defer claiming the loss. The mechanism to do that was basis adjustment.AnEngineer wrote: ↑Wed Aug 17, 2022 9:02 am Even if I were to grant that you cannot adjust the basis of shares that are already sold, I don't see that that would necessarily avoid the wash sale. Disallowing the loss deduction and adjusting the basis are separate parts of the law.
It turns out that that mechanism doesn't work if replacement shares are purchased in a tax-advantaged account. Congress needs to come up with a different mechanism to get back to the temporary deferral for the tax-advantaged account case. Or perhaps someone will take the IRS to court, claiming the IRS is violating Congressional intent by permanently disallowing losses due to purchases in tax-advantaged accounts. The court could say that, because of the permanent disallowal, you can't create a wash sale through a purchase in a tax-advantaged account. So far that hasn't happened.
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Re: Wash sale situation
Your concept of intent overriding the law is so foreign to me. If that were reality, it leads to so many questions like who sets the intent? It can vary across those who voted for it. Should one legislator vote against a bill that has good text because the author stated something else about it? Are there cases where we have to repeal a law and replace it with the exact same text so that we change the intent?rkhusky wrote: ↑Wed Aug 17, 2022 9:17 amThey are linked in the law. Congressional Intent was to only temporarily defer claiming the loss. The mechanism to do that was basis adjustment.AnEngineer wrote: ↑Wed Aug 17, 2022 9:02 am Even if I were to grant that you cannot adjust the basis of shares that are already sold, I don't see that that would necessarily avoid the wash sale. Disallowing the loss deduction and adjusting the basis are separate parts of the law.
It turns out that that mechanism doesn't work if replacement shares are purchased in a tax-advantaged account. Congress needs to come up with a different mechanism to get back to the temporary deferral for the tax-advantaged account case. Or perhaps someone will take the IRS to court, claiming the IRS is violating Congressional intent by permanently disallowing losses due to purchases in tax-advantaged accounts. The court could say that, because of the permanent disallowal, you can't create a wash sale through a purchase in a tax-advantaged account. So far that hasn't happened.
Let me ask a hopefully clarifying question: before RR 56-602 did buying 200 shares of XYZ and then selling 100 of those shares within 30 days at a loss trigger the wash sale rules in your view?
Re: Wash sale situation
The IRS initially, then the lower courts, and finally the Supreme Court determine Congressional Intent.AnEngineer wrote: ↑Wed Aug 17, 2022 5:02 pmYour concept of intent overriding the law is so foreign to me. If that were reality, it leads to so many questions like who sets the intent? It can vary across those who voted for it. Should one legislator vote against a bill that has good text because the author stated something else about it? Are there cases where we have to repeal a law and replace it with the exact same text so that we change the intent?rkhusky wrote: ↑Wed Aug 17, 2022 9:17 amThey are linked in the law. Congressional Intent was to only temporarily defer claiming the loss. The mechanism to do that was basis adjustment.AnEngineer wrote: ↑Wed Aug 17, 2022 9:02 am Even if I were to grant that you cannot adjust the basis of shares that are already sold, I don't see that that would necessarily avoid the wash sale. Disallowing the loss deduction and adjusting the basis are separate parts of the law.
It turns out that that mechanism doesn't work if replacement shares are purchased in a tax-advantaged account. Congress needs to come up with a different mechanism to get back to the temporary deferral for the tax-advantaged account case. Or perhaps someone will take the IRS to court, claiming the IRS is violating Congressional intent by permanently disallowing losses due to purchases in tax-advantaged accounts. The court could say that, because of the permanent disallowal, you can't create a wash sale through a purchase in a tax-advantaged account. So far that hasn't happened.
Let me ask a hopefully clarifying question: before RR 56-602 did buying 200 shares of XYZ and then selling 100 of those shares within 30 days at a loss trigger the wash sale rules in your view?
As to your question, since the IRS does not make the law, the example should not have caused a wash sale before the RR. The RR just clarifies what the law means and has always meant. Of course, a court could overrule the IRS and then their interpretation is what the law means and has always meant.
Congress often writes vague laws due to sloppiness or to escape accountability and leaves the interpretation to the courts.
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Re: Wash sale situation
So if the supreme court uses this to declare that something is now a crime you can be prosecuted for actions before the ruling? And practically, this means you don't know what any law is for sure unless the supreme court has ruled on it, and not even then because they can change their mind, right?rkhusky wrote: ↑Wed Aug 17, 2022 10:47 pmThe IRS initially, then the lower courts, and finally the Supreme Court determine Congressional Intent.AnEngineer wrote: ↑Wed Aug 17, 2022 5:02 pmYour concept of intent overriding the law is so foreign to me. If that were reality, it leads to so many questions like who sets the intent? It can vary across those who voted for it. Should one legislator vote against a bill that has good text because the author stated something else about it? Are there cases where we have to repeal a law and replace it with the exact same text so that we change the intent?rkhusky wrote: ↑Wed Aug 17, 2022 9:17 amThey are linked in the law. Congressional Intent was to only temporarily defer claiming the loss. The mechanism to do that was basis adjustment.AnEngineer wrote: ↑Wed Aug 17, 2022 9:02 am Even if I were to grant that you cannot adjust the basis of shares that are already sold, I don't see that that would necessarily avoid the wash sale. Disallowing the loss deduction and adjusting the basis are separate parts of the law.
It turns out that that mechanism doesn't work if replacement shares are purchased in a tax-advantaged account. Congress needs to come up with a different mechanism to get back to the temporary deferral for the tax-advantaged account case. Or perhaps someone will take the IRS to court, claiming the IRS is violating Congressional intent by permanently disallowing losses due to purchases in tax-advantaged accounts. The court could say that, because of the permanent disallowal, you can't create a wash sale through a purchase in a tax-advantaged account. So far that hasn't happened.
Let me ask a hopefully clarifying question: before RR 56-602 did buying 200 shares of XYZ and then selling 100 of those shares within 30 days at a loss trigger the wash sale rules in your view?
As to your question, since the IRS does not make the law, the example should not have caused a wash sale before the RR. The RR just clarifies what the law means and has always meant. Of course, a court could overrule the IRS and then their interpretation is what the law means and has always meant.
Congress often writes vague laws due to sloppiness or to escape accountability and leaves the interpretation to the courts.
On vagueness, I'm with you on how courts and such can interpret and look at intent (though the idea that the law has always been that way is also foreign to me). But you also want to use the same procedure with the law is perfectly clear, which is the part I find bizarre.
Re: Wash sale situation
No, you base decisions on the current understanding of the law from whatever source of authority is highest. If neither the IRS nor the courts have made a ruling or provided guidance on a matter, it is left to tax experts to interpolate between IRS and court guidance and rulings. And if the taxpayer can't find opinions from tax experts, the taxpayer is left to interpolate between IRS and court guidance and rulings (or look for opinions of lay people on the Internet).AnEngineer wrote: ↑Thu Aug 18, 2022 7:12 am So if the supreme court uses this to declare that something is now a crime you can be prosecuted for actions before the ruling? And practically, this means you don't know what any law is for sure unless the supreme court has ruled on it, and not even then because they can change their mind, right?
And usually people are not prosecuted for things that occurred before a change in understanding of the law, but the courts could allow it I suppose.
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Re: Wash sale situation
I'm trying to reconcile this with what you said about it always being the law as now ruled:rkhusky wrote: ↑Thu Aug 18, 2022 7:26 amNo, you base decisions on the current understanding of the law from whatever source of authority is highest. If neither the IRS nor the courts have made a ruling or provided guidance on a matter, it is left to tax experts to interpolate between IRS and court guidance and rulings. And if the taxpayer can't find opinions from tax experts, the taxpayer is left to interpolate between IRS and court guidance and rulings (or look for opinions of lay people on the Internet).AnEngineer wrote: ↑Thu Aug 18, 2022 7:12 am So if the supreme court uses this to declare that something is now a crime you can be prosecuted for actions before the ruling? And practically, this means you don't know what any law is for sure unless the supreme court has ruled on it, and not even then because they can change their mind, right?
And usually people are not prosecuted for things that occurred before a change in understanding of the law, but the courts could allow it I suppose.
The RR just clarifies what the law means and has always meant.
Re: Wash sale situation
The courts generally give grace if the interpretation of the law changes, reasoning that the taxpayer was acting on incorrect information from the government. That doesn't mean that the law was different prior to the change, since only Congress can actually change the law.AnEngineer wrote: ↑Thu Aug 18, 2022 7:29 am I'm trying to reconcile this with what you said about it always being the law as now ruled:The RR just clarifies what the law means and has always meant.