Wash sale and long term capital gain

Discussion in 'Professional Trading' started by newbietrader1, Dec 26, 2010.

  1. Hi All,

    I am new to this forum and this is my fisrt question about wash sale. I guess lots of people ask about the same thing, so here is my funny story to make it a bit easier on the audience :)

    This year (2010) I bought TurboTax in Nov/Dec. with the intention to calculate my taxes before the end of the year and make some adjustments if necessary, only to discover the existence of "wash sale" rule.

    I tried to read more about it, but suddenly realized that wash rule allows you to "extend" the period of your initial investment. It looks like making wash sales/day trading on a regular basis for more that 365 days you will be actually allowed to declare your investment as a "long term" and get a better tax rate for you gain (if you actually end up with the gain).

    Is that true about long term and wash sale, and does it apply to anyone, or investors only (meaning that "traders" can't do that, even if they have not elected mark-to-market, i.e. have not specifically declared them as traders for IRS)?

    Thanks a lot,
    Newbie T1.
     
  2. If you acquire substantially identical replacement shares 30 days before/after a tax loss sale, it's the loss that is disallowed for the current year and carries forward to next year. IOW, you pay more taxes now. How do you figure that a wash sale is going to achieve long term gains?
     
  3. well, the "wash sale" rule says that you may use the very first date of your first transaction to qualify for "long term" investment, so in-between wash sales are actually ignored.

    But, after more thoughts, I guess I can answer my own question now :)

    The key thing is - the wash sale rule works *only* for transactions with loss, and that is very important.

    If I do day trading with a gain, then my initail date will reset immediately. To qualify for long-term (1y+) I may only sell stock at loss every time, which does not make much of funancial sense...
     
  4. morgen

    morgen

    sounds not completely right, if you sell at a loss, just within 30 days prior to or after you sell at a loss, sometimes the initial time don't reset..