There is one stock I have actively traded this year in two different accounts. I just read that the wash-sale rule applies across multiple accounts, and I want to make sure I understand the implications of this. I know of course that each individual broker automatically adjusts for wash sales, As long as I have completely closed out my identical stock positions in in both accounts by eoy, I gather the numbers would add up correctly despite the fact the stock was traded in two different accounts?--or am I missing something? I'm trying to get a sense of what the IRS considers acceptable in this situation. If additional manual tinkering is necessary on the trader's part, what is the most convenient way to handle this when taxes come around? With an actively traded stock in two different accounts, it would be a real nightmare to go through all trades and try to adjust the numbers oneself. Thanks for your help.
I use TradeLog software for taxes (not needed for futures). It reconciles for you. I have used this firm for trading tax advice: https://www.greentradertax.com/
Get flat the stock and don't trade the stock for 30 days starting sometime in December. Then you can essentially ignore this issue. If you do not do this, then you can expect your tax return to get very complicated.
+1 At this point in the tax year, THIS IS THE CORRECT ANSWER! Kudos to sprstpd!! Many CPAs and tax accountants, unless specialized, don't know that simple solution. They don't really care either... Give em ALL your files, they'll gladly spend hours or days! Between Thanksgiving and New Years (yes I know that's longer than necessary) flatten and do not trade those stocks, or substantially equivalent instruments. If you MUST trade, use that period to your advantage to grow.... look at different sectors, different trading instruments, different asset classes. Remember too, business-trader tax status, if you qualify and properly elect such status, wash sale rules do not apply.
Here are three simple rules to keep in mind that can greatly reduce your risk of having some or all of your losses disallowed for the current tax year and deferred to a later tax year: If you take losses in December, don't buy back the same stock for 31 days. If you take losses in any stock in December, be sure NOT to repurchase the same stock (or an option on that stock) for a period of 31 days. If you do, your losses will be deferred to a later tax year. You won't permanently lose the loss, it will just move forward and you will have a greater tax consequence in the current year. Close out any open positions at year end that have accumulated wash sale losses. If you have any open positions at year end that have wash sale losses attached to them, these wash losses must be deferred to a later tax year. To avoid this unpleasant situation, close the open position that has a large wash sale loss attached to it and do not trade this stock again for 31 days. Avoid trading the same security in your taxable and non-taxable IRA accounts. Because of the severe nature of IRA wash sale adjustments, it is often best to avoid any situation where an IRA wash sale could be triggered. Which means not trading the same security (or options on that security) in both your accounts. If you must trade the same security, be especially alert to losses that occur in your taxable account and avoid any new opening trades for 30 days in the IRA.
You are playing a very dangerous game. Not with the IRS, but the SEC. It can be considered market manipulation depending on how you've been structuring your trades.
I don't have any kind certification to advise anyone on any kind of financial matter, but my layman's understanding is that getting flat at the end of the year is only a right answer if both accounts have the same owners and taxation--that is, both are ordinary taxable accounts or both are accounts exempt from annual income tax on realized gains. If you sold for a loss in an ordinary US taxable account and repurchased within 30 days in an account that is not taxed annually on realized gains, including many trusts, such as IRA's, Roth IRA's, 401k's, Health Savings Accounts, Coverdell Education Savings Accounts, etc., I believe you may have lost the tax deduction from that particular loss forever, without even getting basis on the trust account (this part I wondering about), according to IRS Revenue Ruling 2008-05, at https://www.irs.gov/pub/irs-drop/rr-08-05.pdf . From my cursory look at United States Code title 26, section 408 at https://www.law.cornell.edu/uscode/text/26/408 ), and also a quick search for the word "basis" in 26 USC section 72, I do not understand the IRS's explanation about not getting basis in the trust account account, at least in the case of an IRA, from page 2 of that letter: On the other hand, if you were just trading between two taxable accounts, I think the account in which you repurchased should get basis for the tax deductions you cannot claim immediately, and you will be eventually be able to deduct those losses when you finally close out your position for more than 30 days, even if you do not close your position during this calendar year. By the way, I believe that, if the accounts involved were with the same brokerage and the positions were acquired within the last few years, that the brokerage is required to find and report potential wash sales on the 1099b form that they are required to file with the IRS. In that case, if you're using some common tax package, you can probably just important 1099b in some electronic form without having to do that accounting yourself.
I had forgotten to put this link on my post - here is a good explanation of the wash sales IRS reporting. http://www.tradelogsoftware.com/resources/wash-sales/
Great post - "When a wash sale is triggered by an IRA trade, the loss is permanently disallowed in your taxable account."
Thanks spr, Great info! Now I know the secret. Very simple too. And yet very difficult to find that simple information for avoiding what could easily become a regular tax nightmare! And thanks to everyone else who replied as well, adding color and detail to the issue. Great info all around.