IB - first in, first out (Taxes)?

Discussion in 'Retail Brokers' started by bungrider, Jun 1, 2002.

  1. A friend of mine who is not mark-to-market recently opened an IB account, and is wondering if tranactions thru IB are ALL first in, first out, or if there is any way to keep track of separate lots of the same security for tax purposes (avoiding wash sales). I would call customer service, but if Def can answer here, my life will be easier.

    Example - he buys 300 sh of XYZ - 100sh each at 35, 30, and 25. He sells within 30 days at 30, 35, and 40 (100sh at each price again). If these lots are not tracked separately, his first sale at 30 would be a wash sale (first in at 35, first out at 30) - which he wants to avoid.

    Most other brokers would allow these lots to be kept separate to avoid wash sales (which is perfectly legal) - and thus his first sale at 30 would be the lot he bought at 25, his second sale at 35 is what he bought at 30, and his final 100sh sale at 40 is the lot he bought at 35. No wash sales, everyone's happy.
     
  2. Bungrider,

    As long as your friend can identify the lots, they can use specific identification for attaching the cost basis to each subsequent sale and avoid the dreaded wash sale rule.

    The FIFO rule only applies if you can't make the distinction.

    IMO, this is one instance where good record keeping is real important.

    Good Luck
     
  3. Bungrider,

    An additional FWIW.

    The brokers generally don't care nor keep track of any tax related issues. Brokers report only the proceeds from any sales to the IRS (1099-B). It is the account holders responsibility to correctly report the subsequent tax liability from any transactions.

    Have a great day

    Robbie
     
  4. First I've heard of using lot id to avoid wash sale rules. Where did this come from?

    And what do you do at the end of the year if wash sales cross tax year boundries.

    That's why I elected MTM for 2002 and beyond.
     
  5. stock777

    avoiding the wash sale rule only in the context of the example given.

    Remember it only applies to selling at a loss. In the example any sale could be matched to create a gain and not have to carry any loss forward.

    Best regards.