Let's say we incur a short term capital loss on a stock in December, while holding off trading the same stock until February next year. Technically, more than 30 days pass after the loss. However, the financial year ends before the 30 days pass. When reporting taxes for the past year, is the above loss disallowed due to wash sale rule? I suspect that it will not count as a wash sale. Is that why brokers wait until end of January to create tax forms, to be sure about wash sale properties of securities traded in December?
No, that would not be treated as a wash sale. That is certainly one reason why 1099 forms cannot be prepared on January 2. There are many other reasons. IRS regs state that the broker must provide the forms by February 1. Most brokers are going to move slowly and make sure they get it right. But in some cases, they still have to issue corrected forms after February 1. Mutual funds and ETFs make year-end distributions that are a mix of short-term gain, long-term gain, and return of capital. And they need to time to calculate those things. BMK