Scrumpy,
if you end up with no positions at the end of the year, you shouldn't be subject to the wash sale rule.
Even if you end up with no positions at the end of the tax year, you may be paying Uncle Sam more in taxes than you actually owe ... if you don't use wash-sale accounting. Wash-sale accounting means the loss disallowed by the wash sale ... is added to the cost basis of the replacement stock or securities. However, the holding period for the replacement stock or securities begins on the same day as the holding period of the stock or securities sold.
The above IMO means, with cooperation of the market, one can convert a short-term loss into a long-term gain ... by triggering the wash-sale rule. I wonder if this consequence was envisioned by Congress and the IRS.
Example: 100 shares of XYZ Corp common bought on Jun 1, 1998 for $100 (per share prices) ... sold on Mar 31, 1999 for $90 ... for a $10 loss. One call contract of XYZ Dec 95 bought for $5 on April 29, 1999 ... adjusted cost basis is $15 ... sold on Jun 2, 1999 for $35. Now have a long-term gain of $20 ... even though no securities held Apr 1 -- Apr 28.
If you don't use wash-sale accounting you would have a short term loss of $10 and short-term gain of $30.
I have not seen an equivalent description or example of "converting a short-term loss into a long-term capital gain with a wash-sale" anywhere else, but neither can I find a flaw in the logic. If anyone does, I'm sure you will let me know.
Regards,
Ron
P.S. Scrumpy, try an e-mail to Intuit asking them if they or the IRS are the source of the "last paragraph". I am not sure of what you are calling the "last paragraph" anyway. |
