For those of us who didn't elect Mark To Market last year, now is the time to start thinking about the wash sale rule. If you continue to trade the same stocks past the end of this month (Nov), you will probably have wash sale problems when it comes time to file. The rule applies to trades made 30 days before and after any sale at a loss. So if you traded MSFT 200 times this year (with a mix of profits and loss), I believe there are some issues that will be triggered if you trade it in December. If I'm not mistaken, the net tax effect is ZERO if you stop trading the stocks in question by Nov 30, since all trades will then flow in the same tax year (2001). Maybe we can get some opinions in here as to the best course of action to take. I will probably be filing a Mark To Market election for the 2002 tax year.
Stock777, I'm glad you created this new thread. I posted the following message in a previous one, but nobody came to my rescue. I hope some folks out there will help me out this time. Thanks again in advance: Hi all, I filed a Mark-to-Market election application April of this year for this tax year, but I haven't received anything from them yet. Do you guys receive any confirmation at all? Or can you just proceed to elect MTM status when doing taxes by April 2002--as long as you know that they've received your election application? Thanks in advance for your help. stockoptionist
Stock777, There are two ways to avoid the wash sales: 1) As you mentioned, trade your regular stocks upto Nov 30 and then do not trade them in Dec. 2) Continue to trade those stocks until Dec 31 and then do not trade them until Jan 31. I have used both methods over the years- both are acceptable to IRS.
Stock.. i also filed MTM this past April.. i havent gotten a response either.. funny how the little things slip through the cracks.. im sure if i owed them .07 cents they would have already sent me 12 notices.. gotta love the taxman.. -qwik
As I stated in a previous thread, I cannot believe traders ignore their favorite stocks for 30 days. I believe this rule is ignored, hoping not to get audited.:eek:
I still haven't elected MTM. I basically trade 2 stocks only, ABCD and WXYZ. If during the month of December, 2001 I only trade ABCD, and during January, 2002 I only trade WXYZ, would I then avoid the wash sales?
tom the actual rule is that you are not allowed to sell and repurchase "essentially" the same security.. in other words if ABCD is GE and WXYZ id AMD then you are fine.. but if you are trading INTC and AMAT then you might run into some trouble.. -qwik
qwik, my 2 stocks are in the same sector and pretty highly correlated, so there goes that idea I'm not too keen on trading other stocks, so what do you think of the following idea - without sounding too presumptuous, I feel that by trading ABCD and WXYZ in December, 2001 and afterwards, my bottom line will probably be better off than by trading other stocks I'm not 100% comfortable with, even given the fact that I won't be able to write off my December 2001 losses against the gains. If I'm only foregoing (temporarily as they are offset in future purchase prices) my December losses, then I may be prepared to go for it - if on the other hand by doing this I will be introducing additional, nightmarish tax reporting for myself, then I may give it a miss. I hope I made myself clear PS. I shall be seeking professional help, so feel free to give your opinions.
The wash sale rule applies to each stock individually. I'm not so sure that not trading in January is a viable tactic. The rule applies to and trades before AND after the 30 day window. This implies that if you trade on Dec 15th, any trades affected by the wash sale rule will have to be carried forward to the next tax year. The whole thing is a nightmare.
The IRS site has lots of good info. Here is a link to a document with detailed examples on Wash sales. Just seach for "wash sales" until you find the section devoted to the topic http://www.irs.gov/prod/forms_pubs/pubs/p5500407.htm