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Wash Sales ??
Old 01-31-2008, 04:38 PM   #1
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Wash Sales ??

I've been reading up on wash sales in Pub 550, Schedule D instructions and fairmark.com. I think I understand the wash sale rule, but let me see if I'm getting it.

Example 1:

I buy 1 share of XYZ on 1/1/2008 for $100. I sell 1 sh XYZ on 1/15/2008 for $90. No wash sale here; I have a short term capital loss of $10.


Example 2:

I have owned 1 share of XYZ for over two years with a cost basis of $100. I sell 1 sh XYZ on 1/15/2008 for $90. No wash sale yet. Then I buy 1 sh XYZ on 2/1/2008 for $95. This purchase on 2/1/2008 converts the 1/15/2008 transaction into a wash sale. The $10 capital loss realized on 1/15/2008 cannot be deducted due to the wash sale, but the $10 loss is added to the cost basis of the 1 sh XYZ bot 2/1/2008 for a total cost basis on that share of $105.


========

Just reading the text of Sched D instructions and Pub 550 makes it sounds like Example 1 would be a wash sale, since you purchase shares within 30 days before/after the sale resulting in a loss. However the fairmark sources seem to indicate that the shares bought, thereby triggering the wash sale, must be to "replace" the shares you sold.

From Fairmark.com:
"In general, the wash sale rule prevents you from reporting a loss on the sale of stock if you acquired substantially identical stock on the same day as the sale, or within 30 days before or after that day. But the wash sale rule doesn't apply if the stock you bought wasn't replacement stock."


Fairmark is right, right?
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Old 01-31-2008, 04:54 PM   #2
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Yes. For it to be a wash sale you still have to be holding some stock after the wash, otherwise you don't have any basis to add the wash loss to. From a quick read of that section 550 I'll agree the IRS didn't make that clear but I don't see how it could be otherwise.
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Old 01-31-2008, 08:14 PM   #3
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I've been wondering about the following situation. I have a REIT in my taxable account, and spare cash in my IRA. I no longer want the stock in my taxable account, but I do want to own it in the IRA. Can I sell in the taxable account for a loss, and immediately re-buy in the IRA, and not be subject to the wash sale rule?

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Old 01-31-2008, 08:26 PM   #4
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Fairmark explicitly covers that case, and they say that the wash rule still applies.
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Old 01-31-2008, 09:48 PM   #5
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Quote:
Originally Posted by haha View Post
I've been wondering about the following situation. I have a REIT in my taxable account, and spare cash in my IRA. I no longer want the stock in my taxable account, but I do want to own it in the IRA. Can I sell in the taxable account for a loss, and immediately re-buy in the IRA, and not be subject to the wash sale rule?

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If you purchase the exact same REIT, then you have a wash sale. So the solution is simple: choose a different REIT. Example: Sell RWR and buy VNQ.
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Old 01-31-2008, 09:51 PM   #6
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Quote:
Originally Posted by twaddle View Post
Fairmark explicitly covers that case, and they say that the wash rule still applies.
Thanks Twaddle.

Quote:
If you purchase the exact same REIT, then you have a wash sale. So the solution is simple: choose a different REIT. Example: Sell RWR and buy VNQ
Works fine for asset allocators; not as well for fundamentalists.

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Old 01-31-2008, 11:25 PM   #7
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The first example is NOT a wash as there was only one buy and one sell... you have to do another buy within the 30 day period and it will become wash...

So as an additional example... you bought 1 share 1/1/07 for $100... you then bought another share on 1/1/08 for another $100...

Now.. you decided that the second one was to much money in that stock, so you sell on 1/15/08 at $90.... well, then you have a wash... you move the $10 to the stock you bought on 1/1/08 unless you told your broker to sell the 07 stock...

AND... in your example 2... it would be a wash even if you bought the stock LOWER than what you sold... so the 2/1/08 could be $80, but the 1/15 is still a wash...
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