tax idea for active traders

Discussion in 'Taxes and Accounting' started by all.or.none, Dec 12, 2005.

  1. I swing trade listed names that pay high dividends. I never hold for the 30 days that are required to get the "qualified" dividend tax rate. But last week a great idea for saving tax money came to me while I was writing a VBA macro to do my wash sale calculations for me. Any way, my idea is that wash sales can force non-qualified dividends to become qualified! I'm not a CPA nor have I presented this idea to a CPA, so I could be wrong, but consider the following:

    According to IRS Pub 550, if I sell at a loss and repurchase a few days later I have a wash sale. Pub 550 also says that the holding period of the new purchase "includes" the holding period of the original stock you sold. My question is can I use this to my advantage when It comes time to find out which one of my dividends are "qualified" and which are not. Basically I need to "hold" the stock for 30 days out of 60 to get the lower tax rate on dividends. So say I hold for 10 days, sell at a loss, then buy again and hold for 20 days before selling at a gain. The second trade has an "adjusted" holding period of 30 days because of the wash sale ... so if a dividend was paid while I held the stock will it be a qualified dividend?

    I really don't know the answer to this, but I'll bet there are a lot of swing traders out there including myself who would love to get most of their dividends "qualified". The best part of all of this is the irony! Think about the wash sale rule for a second ... Arguably, the bane of all non-mtm traders. Wouldn't it be ironic if the wash sale rule actually saved us a ton of money!