Wash Sales

Discussion in 'Professional Trading' started by regough, Aug 2, 2002.

  1. regough


    Correct me if I am wrong, but it seems some of you guys might trade the same security several times in the SAME day("People will a hold a stock for 30 seconds if they can make a profit").

    Anyhow, my questions is this- I believe the IRS defines a wash sale as selling a security and then buying back substantially the same security within a calendar period of 30(thirty) days. My understanding was this is not permitted- Am I missing something?

    TIA, Bob.
  2. Banjo


  3. deepitm


    Wash sales apply during any +/-30 day period, not just year end. Most full time traders elect "mark to market" status which avoids wash sale issues. Check out this link for more info:

  4. slb


    Is it simplified to use normal pl procedure if the related postions are all closed at the year end?

  5. EVall323


    You cannot deduct losses from sales or trades of stock or securities in a wash sale.

    A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

    Buy substantially identical stock or securities,
    Acquire substantially identical stock or securities in a fully taxable trade, or
    Acquire a contract or option to buy substantially identical stock or securities.
    If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.
    If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result is your basis in the new stock or securities. The effect of this adjustment is to postpone the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.

    In other words it is only a tax thing.
    The kind of wash sale that is illegal is the painting of the tape which is buying from yourself to make the appearance of activity in the stock. The other kind of wash sale is meant to offset tax gains. Daytraders do not have to worry about this because all gains are short term and we get the short end of the stick tax wise no matter what.
  6. As long as you're not in the position on Dec 31 it doesn't matter. You can't claim the loss on a stock until you sell it down the road. Since for most daytraders 'down the road' means (12) 5-minute bars later - who cares. :D
  7. I believe it's not so simple as that. If you buy back the stock in January (within 30 days of the last sell), you run into reporting issues.

    I elected MTM for this reason, so I can say f*** You to the Wash Sale rules.