Tax Loss Selling Rule?

Discussion in 'Stocks' started by dsq, Dec 26, 2007.

  1. dsq


    If you sell your stock for a loss on Dec 30 you are not allowed to buy it back for 30 days -if you do so you will not be allowed to use the loss as a write-off....This is correct today?
  2. Yes, you are correct. But you can buy it back before 30 days and just adjust the cost basis of the new purchase as follows..

    Example: Some time ago you bought 80 shares of XYZ at $50. The stock has declined to $30, and you sell it to take the loss deduction. But then you see some good news on XYZ and buy it back for $32, less than 31 days after the sale.

    You can't deduct your loss of $20 per share. But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share: the $32 you paid, plus the $20 wash sale adjustment. In other words, you're treated as if you bought the shares for $52. If you end up selling them for $55, you'll only report $3 per share of gain. And if you sell them for $32 (the same price you paid to buy them), you'll report a loss of $20 per share.

    Because of this basis adjustment, a wash sale usually isn't a disaster. In most cases, it simply means you'll get the same tax benefit at a later time. If you receive the benefit later in the same year, the wash sale may have no effect at all on your taxes.

  3. dsq


    "But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share:"

    Thank this a new revision since the 90s?
  4. It's been this way for as long as I can remember.

  5. dsq


    btw,if you bought a stock this year and it is a loser you cannot claim a loss if you sell it in 2008 assuming it is still below your cost price?In other words Dec 30 is the last day you can sell a loser-stock for a write off?
  6. vjay


    DSQ-I assume you made a typo and mean't
    to say Dec 31 is the last day to take a loss
  7. How about during the year one day you sell stock XYZ for a small $500 profit and one week later you enter a new trade on the same XYZ stock and eventually lose $20,500 on it. (Both during the same year.)

    Does the wash sale rule require you to pay tax on $21,000 ($500 gain + $20,500 wash sale) even though you actually lost $20,000 on the two trades combined?
  8. Why are u reporting an income ($20,500) on a loss?

  9. That was poor wording on my part, sorry. Let me put it this way: If I am not allowed to deduct this "wash sale" loss then a $80k overall profit for the year becomes a $100.5k profit I'd owe taxes on. In essence I'd be paying tax on a phantom "gain" of $20,500 if I were not able to deduct it.

    Hopefully this clears up my question. I have asked about the same question in a separate thread under "Career Traders" so you don't have to respond to me here.

  10. After the last loss, did u buy the stock back?

    #10     Jan 1, 2008