Tax Question

[zevo]

The 2011 year was a forgettable one for me as I ventured into trading stocks in the biotech sector which ultimately ended up in a couple grand loss for me....oh well....my question is that I traded in and out of two stocks throughout the year. I recently sold all my positions yesterday and will not be purchasing any back. I have come across this wash rule which can get complicated especially with the amount of trades I have made with the two stocks. Basically, from what I can understand is that as long as all my replacement shares are sold (I have zero holdings) that I can deduct my realized losses. Is this correct? Thanks

[BillsFanNC]

I'm certainly no expert in this area, but this page might have some answers for you.

 

http://www.bogleheads.org/wiki/Tax_Loss_Harvesting

[zevo]

Thanks...i read that article...gets confusing

[DC Tom]

The 2011 year was a forgettable one for me as I ventured into trading stocks in the biotech sector which ultimately ended up in a couple grand loss for me....oh well....my question is that I traded in and out of two stocks throughout the year. I recently sold all my positions yesterday and will not be purchasing any back. I have come across this wash rule which can get complicated especially with the amount of trades I have made with the two stocks. Basically, from what I can understand is that as long as all my replacement shares are sold (I have zero holdings) that I can deduct my realized losses. Is this correct? Thanks

 

If you've made frequent trades of the same stock, http://www.fairmark.com/capgain/wash/wssameday.htm explains your situation better.

 

I've done that...buy XYZ at $100, sell at $75, later in the day buy at $75 and sell at $100, and offset the gain with the loss and claimed a net of zero. Never had a problem with it.

[zevo]

its still very confusing....but I think that as long as you have zero shares (meaning you sold off any shares that would be considered "replacement shares") that your net loss is fully tax deductible. I think the problem comes in if you still own some shares. But thats where my confusion comes in. Just thought someone on the board had some experience with this situation.

[DC Tom]

its still very confusing....but I think that as long as you have zero shares (meaning you sold off any shares that would be considered "replacement shares") that your net loss is fully tax deductible. I think the problem comes in if you still own some shares. But thats where my confusion comes in. Just thought someone on the board had some experience with this situation.

 

No, what it means is that if you sell a block at a loss, then purchase an identical block and later sell that at a gain, you can reduce the gain by the loss of the first block, even though that block is a wash.

 

What you CAN'T do is have two identical blocks, sell one at a loss, then use that loss to offset the gain on the other block. In other words, you buy 100 XYZ at $80, and 100 XYZ at $110. Stock's at $100. If you sell both blocks, netting a $1000 loss and a $2000 gain. Then you buy 200 shares the next day. THAT purchase makes the previous day's sell a wash sale, and THEN you're taxed on the full $2000 gain.

 

But then it gets really complex if you start doing things like selling only one block or part of a block or selling all of one block or part of another (and in all cases you HAVE to specify which block you're selling from.) That starts to get nasty enough that I almost always trade in single whole blocks - it's easier, and if I'm trading (as opposed to investing, in my 401k or IRA), I'm not doing anything like dollar cost averaging where I have to buy multiple blocks.

[zevo]

ugggghhhhh......I usually use turbo tax to do my taxes but I may have to go seek a professional all because I thought it would be fun to dabble in trading biotech's.....lesson learned....all that I know is that my scottrade account has tallied a realized loss for the years at around 2,000$.....

[zevo]

"For example, say you purchase 100 shares of XYZ for $25 per share on Feb. 10. Nine days later, on Feb. 19, XYZ drops to $22 per share and you sell your 100 shares. You have a capital loss of $3 per share, or $300, which may be tax-deductible. If on Feb. 26 you bought the same security for $22.50 per share, this would be considered a wash sale because you sold and repurchased shares of the same stock within only a few days. Without the wash sale rule, the result would be that you could possibly have a tax deduction for your loss, but you would still own the shares, which is why it's sometimes called an "artificial" loss.

With the wash sale rule in place, the loss is deferred until the replacement shares are sold. In this example, that means your $300 loss would be added to your cost basis on the shares you repurchased on Feb. 26 to get an accurate capital gain/loss figure when you sell those shares."

 

 

This is from my scottrade account regarding wash sales...... So basically if you re-purchase the same amount of shares that you sold within 30 days of selling, your losses just get added into the cost of the shares you repurchased. So basically by the end of the year, if you have no shares, then it should all be squared and my net loss that is shown should be accurate and able to be deducted.... This is what i am trying to confirm.....I apologize for my redundancy in any of this....I am not an accountant by any stretch..... but thanks for the replies.

[Live&DieBillsFootball]

"For example, say you purchase 100 shares of XYZ for $25 per share on Feb. 10. Nine days later, on Feb. 19, XYZ drops to $22 per share and you sell your 100 shares. You have a capital loss of $3 per share, or $300, which may be tax-deductible. If on Feb. 26 you bought the same security for $22.50 per share, this would be considered a wash sale because you sold and repurchased shares of the same stock within only a few days. Without the wash sale rule, the result would be that you could possibly have a tax deduction for your loss, but you would still own the shares, which is why it's sometimes called an "artificial" loss.

With the wash sale rule in place, the loss is deferred until the replacement shares are sold. In this example, that means your $300 loss would be added to your cost basis on the shares you repurchased on Feb. 26 to get an accurate capital gain/loss figure when you sell those shares."

 

 

This is from my scottrade account regarding wash sales...... So basically if you re-purchase the same amount of shares that you sold within 30 days of selling, your losses just get added into the cost of the shares you repurchased. So basically by the end of the year, if you have no shares, then it should all be squared and my net loss that is shown should be accurate and able to be deducted.... This is what i am trying to confirm.....I apologize for my redundancy in any of this....I am not an accountant by any stretch..... but thanks for the replies.

 

As long as you sold all of the shares by year end, you will be able to deduct the full loss this year. You can always use your turbotax from last year to verify it. Save your return under a new name and enter in the trades as if they were done in 2010 and verify that turbotax records the full loss on the sale. I always use the prior year turbotax to run what-ifs in the new tax year. Just make sure to check for tax law changes for the new year.

[zevo]

As long as you sold all of the shares by year end, you will be able to deduct the full loss this year. You can always use your turbotax from last year to verify it. Save your return under a new name and enter in the trades as if they were done in 2010 and verify that turbotax records the full loss on the sale. I always use the prior year turbotax to run what-ifs in the new tax year. Just make sure to check for tax law changes for the new year.

 

That is the way I interpret it...Thanks