Unequal Shares
It is inevitable that an active trader will occasionally (and possibly almost
never) buy back an equal number of shares after realizing a loss. This is
where the wash sale rule starts to really get complicated. IRS publication 550 page 56 states:
| More or less stock bought than sold.
If the number of shares of substantially identical stock or securities you
buy within 30 days before or after the sale is either more or less than
the number of shares you sold, you must determine the particular shares to
which the wash sale rules apply. You do this by matching the shares
bought with an unequal number of shares sold. Match the shares bought in
the same order you bought them, beginning with the first shares bought.
The shares or securities so matched are subject to the wash sale rules. |
The Net Affect
What this effectively does is to start dividing up your wash sales by the
minimum number of shares bought or sold. A couple of simple examples show
this quite clearly:
- You buy 100 shares and sell them at a $200 loss. You then buy back
50 shares within the 30 day window. How much of the $200 loss gets moved
forward to the cost basis of the 50 shares? $100 is the right answer (50
sh / 100 sh x $200).
- What if you bought and sold 100 shares at a loss and then bought
back 20 shares and then another 80 shares, the wash sale loss on the 100
shares gets split 20/80 with 20% of the loss going to the first buy of 20 shares and the
other 80% going to the other 80 shares.
- Now what happens if you had bought and sold 1000 shares at a loss and then
bought back 200, then 300, then 100, then 600? What if one or more of the
re-purchases are sold at a loss and you then buy back a series of unequal numbers of shares?
It starts to get very
complicated, like the branches on a tree. For an example, please see
our
Wash Sale Deferral Example
page. Who has time to figure this out manually?
Learn More... Wash Sales in an IRA
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.
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