Wash Sales among family members' brokerage accounts.

Discussion in 'Trading' started by Longcat1982, Dec 2, 2011.

  1. Let's say you trade and so do some other members of your family. You all trade and are very careful to avoid wash sales.

    I'll assume you all know what wash sales are but if not, please see: http://fairmark.com/capgain/wash/ws101.htm

    Let's assume there's a popular stock XYZ that both you and your relative are trading.

    You buy 100x XYZ at $100 on July 1, 2011 and sell it on Aug 3, 2011 at $110. Then you buy 100x back at $90 on September 7, 2011 and sell it on October 15, 2011 for $85.

    Your relative bought 100x XYZ at $95 on July 15, 2011 and sold it on Aug 19, 2011 at $115. He then buys it back on September 23, 2011 at $95 and sells it on November 1, 2011 at $90.

    If you're just minding your business and have no idea what your relatives are doing, you calculate your taxable gain by:

    1) Gain of $1000 from 7/1 to 8/3.
    2) Loss of $500 from 9/7 to 10/15.
    3) Net gain of $500.

    Your relative, clueless of what you're doing, calculates his taxable gain by:

    1) Gain of $2000 from 7/15 to 8/19.
    2) Loss of $500 from 9/23 to 11/1.
    3) Net gain of $1500.

    But notice that your relative bought the stock on 7/15 and you sold yours on 8/3. There's less than 30 days in between the 2 transactions which technically should be a wash sale! Thus, neither of you should be allowed to deduct the losses (and your taxable gains from the transactions are $1000 and $2000 respectively)!

    If the IRS sees this, will they interpret this as a wash sale even though neither party intended for it to be one and didn't know what the other was doing?
  2. it should be fine as long as the accounts are actually owned by different individuals
  3. Assume:

    Both accounts are under different names.

    The owners of both accounts are related by blood.

    The owners of both accounts live in separate households hundreds of miles away.

    Both account owners are adults

    Neither person is someone else's dependent.
  4. sounds legit, but i understand and think your inkling of paranoia is reasonable considering the current state of our government. check with a tax accountant or lawyer?
  5. pbj


    There is no wash sale here even if all these trades were done by one individual in one account.
  6. I'm not an accountant by any means, but i could say with almost 100% certainty that it would not constitute as a wash sale. Each brokerage account for each person are treated individually. Your taxes and person A's taxes (assuming you're independent, related people, ie cousin, brother, aunt, etc.) are treated as two completely different things. If you guys both donated $5,000 to charity would you have to split the difference since you both did and are related? No. Bottom line, I think you're okay, in the big picture, your relative is no different than any other person trading that stock.