Friends and Family Account - Wash Sale Questions

Discussion in 'Retail Brokers' started by jsmith, Jun 22, 2009.

  1. jsmith


    "The wash sale rule prevents you from claiming a loss on a sale of stock if you buy replacement stock within the 30 days before or after the sale."

    I have elected Mark to Market accounting so I don't have to worry about wash sales but how does it affect all the accounts in the Friends and Family Accounts?

    Someone without Mark to Market could owe taxes for a trading year they never made money on if they keep trading the same securities. I'm concerned that family members would have problems since they don't have the election.

    Does anyone here use the IB Friends and Family and trade the same securities regularly? Do wash sales apply to the accounts you are trading for?

    Thanks for any responses!
  2. each account is treated as an individual. the master account holder status has no bearing on the sub accounts.
    the solution is simple. make money for your clients. wash sales do not apply to profits. if you are losing money for your clients should you be trading their money?
  3. jsmith


    Wash sale applies even when profitable if I understand it correctly.


    I buy XYZ and sell it for 5k loss.
    I buy XYZ again within 30 days for 10k gain.

    I would have to pay taxes for 5k gain.

    Someone without Mark to Market would have to pay taxes for 10k gain since the 5k loss would be disallowed under the wash sale rule.

    Please correct me if I'm wrong. Thanks.

  4. GTS


    I believe you are wrong.

    They wouldn't be able to take the 5k loss but their basis for the second purchase would be adjusted based on the loss so the net result would be the same (taxes on $5k profit).

    That's my understanding....not a tax pro but I've read IRS Pub 550 (
  5. jsmith


    I didn't know you can add the disallowed loss to the new purchase to adjust the basis.

    The wash sale rule doesn't apply to people who have a net gain because of that rule.

    That makes sense now. Thank you very much.

  6. morgen


    * If you buy identical shares within 30 days, but they¡¯re not replacement shares, it¡¯s not a wash sale.
    * You¡¯ll have to follow mechanical rules to handle a situation where you don't buy exactly the same number of shares you sold, or where you buy and sell multiple lots of shares.
    * Your loss may be disallowed if a person related to you (or an entity related to you, such as an IRA) buys replacement property.
    * If you enter into a contract or option to acquire replacement stock during the wash sale period, it¡¯s considered a wash sale.
    * If you don't sell the replacement stock in the same year, your loss will be postponed--possibly to a year when the deduction is of far less value.