Investing General Discussion

Blazin said:

Not sure I agree with the accountant there is no calculation , you realize the loss you immediately buy something that puts you back in the market and done is done. There are a million and one ways to get market exposure and they are not going to trigger a wash sale rule. We can argue over what would stand up to an audit, and that is a larger gray area but to pay this tax over that fear seems crazy to me. You could simply switch from S&P to total market or something, so many ways to do it don't see the point of listing them literally hundreds if not thousands.

Click to expand...

I wasn't saying something hard and fast. I was just wanting to point out the opportunity cost possibility of the particular scenario he laid out of going back into the same investment after the wash period. I agree he could realize the loss and then go into QQQ or TOPT etc and avoid the wash period.

since its come up, lets go to the horse's mouth...

IRS Publication 550


Wash Sales
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

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,
Acquire a contract or option to buy substantially identical stock or securities, or
Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

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 (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.

Example 1. You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss

Substantially identical. In determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases. For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.
Similarly, bonds or preferred stock of a corporation are not ordinarily considered substantially identical to the common stock of the same corporation. However, where the bonds or preferred stock are convertible into common stock of the same corporation, the relative values, price changes, and other circumstances may make these bonds or preferred stock and the common stock substantially identical.

It goes on and on and on. Suffice it to say many of these rules were created before the advent of mutual funds and ETFs. Like everything involving the IRS, its perfectly reasonable and legal... until they say it isn't. We can all say that SPY, IVV, VFAIX etc are or aren't substantially identical. All that matters is what the brokerage reports to the IRS. If your broker says they are and reports the wash sale to the IRS, the onus is on you to convince the IRS otherwise. Likewise, if your broker rules they aren't the same and doesn't report it as a wash, the IRS will never see it or care.

Circling back to Blazin and the crypto wash sale I saw mentioned. We all know Doge and BTC are not substantially identical. Every crypto exchange knows it. But if a regular broker decides to flag it on a 1099-B that goes to the IRS, good luck convincing the IRS otherwise. If you file an 8949 and don't mark a wash sale that the 1099-B marked I would expect to receive a CP2000 letter from the IRS sometime in the future. Unless Trump shutters the IRS. In that case, have at it boys.

Slow morning. Throwing more money at SOUN. If RKLB goes below $17 I’m in for more