Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Tax Question: Disallowed Loss
Old 03-08-2010, 01:22 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
Tax Question: Disallowed Loss

Last June I transferred $20,000 from the VG 500 index fund to the money market. The cost basis for those shares was $25,021.04, but the Average Cost summary that I got from VG shows a Disallowed Loss Amount of $221.50.

Question 1: why would that be disallowed? I didn't put any money into that account in 2009.

Question 2: TaxAct asks only for sales proceeds and cost basis. Do I put in $24,799.54 for the cost basis?

Thanks.
__________________

__________________
Al
TromboneAl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-08-2010, 01:33 PM   #2
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
really these are questions for Vanguard.

I would guess that it's a wash sale loss where Vanguard was trading in and out of the market in less than the 30 day window.

regarding the basis - I would use what's on the Average Cost Summary

But what do I know. Perhaps other posters can enlighten us.
__________________

__________________
MasterBlaster is offline   Reply With Quote
Old 03-08-2010, 01:36 PM   #3
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Question 1: Did you reinvest dividends into the fund during the 30-day period before or after the sale? That could trigger a wash sale. It's probably what happened as this fund makes a distribution in June. To avoid that problem in the future, it might be better to have the dividends paid to a money market fund and reinvest the money manually.

Question 2: Yes, $24,799.54 is your total cost basis but you may have to figure out your short term/long term cost basis and enter those separately.
__________________
FIREd is offline   Reply With Quote
Old 03-08-2010, 01:54 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
Quote:
Did you reinvest dividends into the fund during the 30-day period before or after the sale? That could trigger a wash sale...
Yes, that would explain it, thanks.

So, do I just use $24,799.54 for the cost basis? Note that this will make no difference in the amount of tax I pay.
__________________
Al
TromboneAl is offline   Reply With Quote
Old 03-08-2010, 01:57 PM   #5
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
Originally Posted by TromboneAl View Post
Yes, that would explain it, thanks.

So, do I just use $24,799.54 for the cost basis? Note that this will make no difference in the amount of tax I pay.
Are all the shares your sold either short term shares or long term shares, i.e. does vanguard only show a short term or long term loss for that fund? If yes, then you can use $24,799.54 as the cost basis. If it's a mixture of short term and long term losses, you have to break it down.
__________________
FIREd is offline   Reply With Quote
Old 03-08-2010, 02:36 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,446
Yeah - those reinvested dividends can really get you sometimes! I have to be really careful. In general, if I expect that I'm going to sell a fund sometime soon, I turn off reinvestment to that fund.

It's been so long since I have done this, but I thought 1040 form Schedule D had a spot for the disallowed loss (wash sale) value. Maybe I'm wrong......

Audrey
__________________
audreyh1 is online now   Reply With Quote
Old 03-08-2010, 02:51 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
TaxAct and other software should allow you to (or it should by itself) specify the cost basis of your shares including the date acquired.


[....this paragraph may not be quite right ....][I would certainly tell TaxAct about the lot that was re-invested. It should show up on the Short-term section of Schedule D and you can (or the software should) write "Wash sale" where the loss would be.]

If all your shares sold are long-term, you could still have a wash sale. I would put one line for the non-wash-sale shares and one-line for the wash-sale shares. For the wash-sale shares you write "Wash sale" where the loss would be.

You get to add that loss to the basis of those shares purchased in that dividend re-investment, so the loss is deferred and not lost. Of course, if you sold ALL shares of the fund, then there is no wash sale and the tax software is pulling your leg.

As for recordkeeping if you have not used AverageCost basis in reporting on this fund before, then you don't need to use it this time either. Instead you can use First-In, First-Out.

This is all nicely explained by the relevant IRS publication which is well worth reading and understanding.
__________________
LOL! is offline   Reply With Quote
Old 03-08-2010, 03:21 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
OK, thanks for the advice. I use average cost because I have in the past. I used it in the past because it was simpler for me. Yes, they are all on the long term line.

Yes, I could break it out into wash and non-wash sales, but I think that with the single Average Cost value that I have for all those shares, I do not have enough information to break it out. That is, I know the average cost of all the shares sold, but I don't know the average costs of the wash and non-wash shares sold, respectively.

The question is, will the IRS computer see a discrepancy and become disgruntled?

Data from VG:

StockSale.jpg

How I report it:

TaxExcerpt.jpg
__________________
Al
TromboneAl is offline   Reply With Quote
Old 03-08-2010, 03:39 PM   #9
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Cost basis information is not reported to the IRS, so their computer can't see a discrepancy regarding cost basis. The sales proceed number though is reported to the IRS, so you need to make sure that number matches the 1099 form.

I too use the average cost method and I report my wash sales exactly like you did above.
__________________
FIREd is offline   Reply With Quote
Old 03-08-2010, 03:43 PM   #10
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,074
Quote:
Originally Posted by TromboneAl View Post
OK, thanks for the advice. I use average cost because I have in the past. I used it in the past because it was simpler for me.

Yes, I could break it out into wash and non-wash sales, but I think that with the single Average Cost value that I have for all those shares, I do not have enough information to break it out. That is, I know the average cost of all the shares sold, but I don't know the average costs of the wash and non-wash shares sold, respectively.

The question is, will the IRS computer see a discrepancy and cause problems?

Data from VG:

Attachment 8461

How I report it:

Attachment 8462
Al,

A similar thing happened to me a few years ago with a VG fund. I also forgot about the auto re-investment of the dividends and ended up getting caught by the wash rules. Like you I always use the Average cost method.

The forms you display look good to me. (but I'm not a tax expert).
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 03-08-2010, 05:09 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,251
Just to let you know.... I just ignore the small disallowed amounts like this... because I do not want to keep track of them...

I take my whole loss and will do the audit roulette... if they catch me, I will pay up the small amount...

YMMV....
__________________
Texas Proud is online now   Reply With Quote
Old 03-08-2010, 05:43 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
I would report it differently because you are losing the $222 in disallowed loss for future use.

I would divide the one $20,000 transaction into two transactions: One transaction not affected by the wash sale and a 2nd transaction that is the wash sale. The IRS rules are that the First shares sold apply to the wash sale, but it is not important since you are using average cost basis.

So, find out the number of shares that were purchased in the plus or minus 30-day window. This number of shares is the amount of shares for the 2nd transaction. Let's say is was 30.1 shares. The other transaction is then 236.183 - 30.1 = 206.083 shares.

So you enter 2 transactions of 206.083 (no wash sale) and 30.1 (wash sale) as per IRS instructions.

Then don't forget to add $221.50 to the cost basis of those shares purchased that caused the wash sale.
__________________
LOL! is offline   Reply With Quote
Old 03-08-2010, 06:02 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I think LOL has it exactly right and it should be easy to tell from you Vanguard Statement how many shares you bought due to dividend reinvestment.
__________________
clifp is offline   Reply With Quote
Old 03-08-2010, 06:19 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,446
I believe that is how Turbotax entered my stuff when downloaded from Fidelity - as two separate transactions.

Audrey
__________________
audreyh1 is online now   Reply With Quote
Old 03-08-2010, 07:15 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Like some others, this is why I do not automatically re-invest dividends in taxable accounts. Let them accumulate and put them in where/when you want (maybe as part of a re-balance of AA). Keeps life much simpler.

The bigger story here is - the transaction that T-Al made is really very simple, and many people do re-invest dividends. Yet, I bet you'd be hard pressed to get a straight answer on this by calling the IRS. And that is just wrong (but it is the fault of Congress, more than the IRS).


-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 03-12-2010, 12:14 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
I'm getting closer, but I can't quite get the calculations right. Based on this:

TaxReinv.jpg

I do these calculations:

Average cost/share = 25021.04/236.183 = 105.939
Average cost of wash sale shares = 105.939 * 10.419 = 1,103.78
Average cost of non wash sale shares = 105.939 * (236.183 - 10.419) = 23,997.30

Non wash sale:
# Shares = 236.183 - 10.419 = 225.764
Sales price = 225.764 * 84.6801 = 19,117.72
Cost Basis = 23,997.30
Gain or Loss = 23,997.30 - 19,117.72 = -4,879.58

Wash Sale:
Sale price = 10.419*84.6801 = 882.28
Cost basis = 1,103.78
Gain or loss = 1,103.78 - 882.28 = -221.50

The wash sale value comes out OK, but the non-wash sale loss should be -4,800, right?

The IRS form instructions say:
Enter the full amount of the (loss) in column (f). Directly below the line on which you reported the loss, enter "Wash Sale" in column (2), and enter as a positive amount in column (f) the amount of the loss not allowed."
So why not just do it like this?

TaxExcerpt.jpg
__________________
Al
TromboneAl is offline   Reply With Quote
Old 03-13-2010, 12:33 AM   #17
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 197
Quote:
Originally Posted by TromboneAl View Post

I do these calculations:

Average cost/share = 25021.04/236.183 = 105.939

Non wash sale:
# Shares = 236.183 - 10.419 = 225.764
Sales price = 225.764 * 84.6801 = 19,117.72
Cost Basis = 23,997.30
Gain or Loss = 23,997.30 - 19,117.72 = -4,879.58

Attachment 8533
I think your cost basis for your non wash sale is miscalculated.

225.764 * 105.939= 23,917.21

23,917.21- 19,117.72= -$4,800
__________________
RedHawk is offline   Reply With Quote
Old 03-13-2010, 07:41 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
T-Al, you can do it either way. I do like your idea to follow the IRS instructions, but then I would follow them exactly: "Wash Sale" in column (a), nothing in columns b-e, then the washed amount in column (f). That's slightly different than the pic you showed, but it probably doesn't matter.

If you use tax software, the software often asks about wash sales, what does it do?
__________________
LOL! is offline   Reply With Quote
Old 03-13-2010, 08:29 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
OK, thanks RedHawk, that solved it.

TaxAct didn't ask about wash sale stuff, or else I missed it.
__________________
Al
TromboneAl is offline   Reply With Quote
Old 03-15-2010, 10:31 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,194
For completeness, here's the final result:
SchedDExcerpt.jpg
TaxAct did explain exactly how to do it, but I hadn't seen it, because that help came after the data entry part.

Thanks for the help. I will turn off reinvestment in the taxable funds so that I don't have to deal with this in the future.
__________________

__________________
Al
TromboneAl is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Tax question - Capital loss exceeds income -> no carryover? SecondCor521 FIRE and Money 9 02-15-2010 10:30 AM
Quick Tax-Loss Harvesting Question Amethyst FIRE and Money 3 11-11-2009 09:10 AM
CD gains/Equities Loss Tax Question DAYDREAMER FIRE and Money 3 12-30-2008 02:42 PM
Tax Loss Harvest Question Beer man FIRE and Money 11 11-25-2008 10:52 AM
Tax Loss Harvesting wabmester FIRE and Money 7 10-18-2006 02:43 PM

 

 
All times are GMT -6. The time now is 11:56 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.