wash sale question

[steady saver]

My rudimentary understanding of a wash sale is that if I sell a stock and take a loss (or a gain I guess) that I have to wait 30 days before I can buy it again and be able to claim that loss.

My question is: Can I do that backwards? That is, can I go ahead and buy the (depressed) stock now and then sell other specific lots of the same stock that I already own and still take my loss? Do I have to wait 30 days to do that?

 

[Sunset]

My rudimentary understanding of a wash sale is that if I sell a stock and take a loss (or a gain I guess) that I have to wait 30 days before I can buy it again and be able to claim that loss.

My question is: Can I do that backwards? That is, can I go ahead and buy the (depressed) stock now and then sell other specific lots of the same stock that I already own and still take my loss? Do I have to wait 30 days to do that?

Wash sales only count on loss. You can sell for a gain and buy it right back and that is fine.

You have to have 30 days between the buy and loss sale , regardless of whether you buy first or after the sale.

<feel free to correct me if I got that wrong>

 

[Sunset]

You can sell for a loss, and immediately buy something different but similar, and that is fine.

Example sell VTI for a loss, and buy SCHD, wait 30 days, sell the SCHD and buy back the VTI. (if you considered VTI and SCHD similar enough for your tastes).

 

[LOL!]

It can be tricky.

If you buy shares in the 30 days before you sell OTHER shares at a loss, then that is a wash sale.

If you buy shares and sell the SAME shares at a loss within 30 days of a purchase, then not a wash sale.

Note that the shares sold at a loss have to be in a taxable account for the wash sale to apply.

Example where wash sale would not apply: You sell shares for loss in your Roth IRA and buy substantially identical shares in your taxable account. That is not a wash sale. Example: Sell VTSAX in Roth, buy in taxable.

Example where wash sale WOULD apply: You sell VTSAX shares for loss in your taxable account and buy VTSAX shares in your Roth IRA.

 

[LOL!]

My question is: Can I do that backwards? That is, can I go ahead and buy the (depressed) stock now and then sell other specific lots of the same stock that I already own and still take my loss? Do I have to wait 30 days to do that?

You have to wait 31 days to do that. If you buy on the 30th day, then that is a wash sale and is not illegal, so you really don't have to wait. You would have to add the disallowed loss to the cost basis of your newly acquired shares which is really not a big deal. (Except if the newly acquired shares are in an IRA, then it is a big deal.)

 

[LOL!]

Sometimes people are so worried about a stupid wash sale that they lose more money by not creating a wash sale. Here's contrived example:

Sell VTI for a 10% loss on April 28. VTI drops 20% by May 13, but investor refuses to buy since that would be a wash sale. VTI goes up 20% by May 28. The investor would have been better off buying VTI on May 13.

Of course, the investor could have bought ITOT on May 13 and not created a wash sale.

 

[steady saver]

Thank you all for such speedy replies.

We have company stock that we've acquired as bonus over the years. It is a "good" company and I always viewed it as free money and have kept it through the years out of complacency and the fact that it has always paid a good dividend. (DH - "but it pays a good dividend! " Me - "but it's been at a loss since last year") Note: we first started accumulating this stock via bonus in 2015. Now the dividend has been cut substantially. The stock is at a low. My guess (and that guess and a nickel will get you nowhere...) is that this very reputable company and stock will weather the storm and has good long term prospects. But I'm thinking we could take a loss (our total loss is 46% with current value around $267K) and wait the 30+ days and rebuy it and maybe recoup our losses over the long term that way, while taking advantage of the loss now on our taxes. And my question came because I was thinking "gee, if I could buy it now while it's really hit a low, then that would be a great thing." I just didn't know if I could buy now and sell old lots and still be able to write off the loss on the old lots. But it sounds like the consensus is "no".

So now I suppose the question could be: do I go ahead and sell (even just 1/2 of it), wait the 31 days and buy again OR do I go ahead and buy some more at this new low and wait 31 days and sell? Or maybe do an Old Shooter thing and do nothing? That certainly has merit. The thing is, I've never liked owning this much company stock. It's 8-9% of overall investments and 25% of taxable individual stocks. I suppose another option is that I could always sell it and use the proceeds to add to VTI (which is currently 12% of invested portfolio). Or I could buy something something "safe" since our AA is roughly 75/25 but gosh that is not appealing (and yet part of me feels like it should be). We are both 57 so I feel like we have some time to recover and we have cash for 3-5 years (depending on future spending projects).

The great news is that DH has been offered a package to pull the plug now (so fortunate b/c he was going to retire anyway!!!!) and so I'm looking for ways to reduce our taxes if possible, since I don't know how else to be creative at the moment.

I'd value your input.

 

[steady saver]

Sometimes people are so worried about a stupid wash sale that they lose more money by not creating a wash sale. Here's contrived example:

Sell VTI for a 10% loss on April 28. VTI drops 20% by May 13, but investor refuses to buy since that would be a wash sale. VTI goes up 20% by May 28. The investor would have been better off buying VTI on May 13.

Of course, the investor could have bought ITOT on May 13 and not created a wash sale.

LOL, that's true and good to remember. Because I feel like we've done the same thing with trying to figure out the tax game. I'm no CPA so I don't even know what exactly what parameters I'm trying to work within. I just don't want to do something too stupid.

 

[Sunset]

OP - Just to clarify, this stock you are wanting to sell for a loss is in a taxable account, and NOT a 401K or IRA/ROTH ?

Having 8-9% of savings in 1 company stock is risky, many would feel 5% is the highest. It is extra risk when it's an employer, because if they went bankrupt, you also lose income or possibly pension at the same time as the stock collapses.

 

[LOL!]

I would sell all losing positions in the stock and buy something more diversified in the same asset class immediately. It reads like the company might be a US large-cap and perhaps a member of the S&P500. If so, I would sell all losing positions and buy the Vanguard S&P500 Index fund or the Large-cap Index fund or the Total US Stock Market index.***

Basically this is a great time to unload single stock risk and get diversified. Then after 30 days, one can consider whether one would want to buy it back. But I hope that one would not want to buy it back.

***If the company was a mid-cap stock, then buy Mid-cap index. If the company was small-cap stock, then buy small-cap index.

 

[sengsational]

I've always wondered who's even looking.

Individual transactions are not reported to the IRS, right? So if they audited you, you'd be caught, but otherwise, not?

I've never really had the opportunity to need 'artificially' generated losses (I had legit losses that, being chipped away over the years, $3K at a time, took nearly forever to get rid of).

LOL!'s idea is what I'd do if I wanted to realize a loss, but just curious about this rule at the level of individual investors here. Seems like a silly rule.

 

[steady saver]

OP - Just to clarify, this stock you are wanting to sell for a loss is in a taxable account, and NOT a 401K or IRA/ROTH ?

Having 8-9% of savings in 1 company stock is risky, many would feel 5% is the highest. It is extra risk when it's an employer, because if they went bankrupt, you also lose income or possibly pension at the same time as the stock collapses.

Yes, this is in my individual Fidelity account, not our 401K.

And I do agree with you, thank you. I needed to hear that from someone else. So does DH, ha. Though, honestly, he doesn't really care what we do with it.

 

[steady saver]

I would sell all losing positions in the stock and buy something more diversified in the same asset class immediately. It reads like the company might be a US large-cap and perhaps a member of the S&P500. If so, I would sell all losing positions and buy the Vanguard S&P500 Index fund or the Large-cap Index fund or the Total US Stock Market index.***

Basically this is a great time to unload single stock risk and get diversified. Then after 30 days, one can consider whether one would want to buy it back. But I hope that one would not want to buy it back.

***If the company was a mid-cap stock, then buy Mid-cap index. If the company was small-cap stock, then buy small-cap index.

It's not in the S&P 500 anymore b/c it's more of an international company. And, ALL positions we have in it are losing. Other than the small amount I have in Wells Fargo, it is my only losing stock in my taxable account. That's why I've always loathed it.

We have roughly 31% of VTI in the taxable portfolio and 5.5% of AAPL. Those are our other larger exposures. I have a small presence of VB and other stocks (Starbucks, Google, Tractor Supply, and Chipotle leading with a smattering of a few others). Would you simply add to VTI?

 

[LOL!]

If your company belongs to any index (and is not found in VTI), then I would buy that index. But VTI is more than fine in any and all situations where equity is desired.

 

[steady saver]

If your company belongs to any index (and is not found in VTI), then I would buy that index. But VTI is more than fine in any and all situations where equity is desired.

I find it in VTIAX (Vanguard Total International Stock Index Fund Admiral Shares) and VIHAX (Vanguard International High Dividend Yield Index Fund Admiral Shares).

I don't know that I'm stuck on wanting an international index fund though...

 

[pb4uski]

What you could do is sell your company stock and buy a call option for the same notional amount on a close competitor (or competitors)... then after 31 days sell the call option(s) and use the proceeds from the call option(s) and the proceeds from the sale of the employer stock to rebuy some employer stock. Probably not perfect, but as close as you can get assuming that the employer stock and competitors move in concert during those 31 days.

As others have said, you don't want to get too concentrated in any one stock, particularly an employer.

 

[RetireBy90]

I would sell and capture the loss. Caution has me wait 33 or 34 days as I jumped the gun once and bought shares back on 30th day, and then found it was a wash sale and didn’t get the loss deduction.
If you believe in the company you could sell, and then buy back 1/2 as much or 1/3rd and redeploy the other into the funds or other individual stocks or what ever you are most comfortable with.

 

[LOL!]

It reads like an oil company.

 

[pb4uski]

In that case an energy sector fund might work as an interim investment for the 31 days... or forever.

 

[gayl]

Individual transactions are not reported to the IRS, right?

Got me wondering. When I do my taxes the tax software downloads all transactions from Schwab.

 

[gayl]

Bought in IRA 2019 then sold at a loss 3/18/20. Repurchase in brokerage, Roth & IRA within a few weeks at a much lower price. Sold Roth 5/26/20. I still hold in the IRA & the brokerage. If I sell the brokerage shares (100 @ 8.69 at 22sh) do I recognize a profit or do I get a stepped up basis?