Jeff H. - *OT*
There is a thread for tax related matters on SI, here is a post on wash sales and the thread link. Hope it helps you. Also, hope all have a nice Labor Day holiday....
John
To: Martin Wormser (14508 )
From: John Koligman
Saturday, Aug 22 1998 8:51PM ET
Reply # of 14673
Martin and Thomas - more on the 'wash sale' rule:
There is a thread out on SI for tax related matters, I copied a post from it that
talks about the rule. 30 days it is, and here is some more info that should help
both of you...
The thread can be found at:
Subject 5727
To: RookieTrader (446 ) (Trial Member)
From: RookieTrader (Trial Member)
Wednesday, Aug 19 1998 1:16AM
ET
Reply # of 464
Some clarity on WASH SALE...
Seems like people are making this more confusing then it really is.
It's called a wash sale because in a sense that is really what it is doing.
Washing your losses away onto this years taxes...yet you still own the
security. A simple example:
You buy 1000 shares of xyz @ $100. on Jan 2nd 1998 (or anytime after the
start of the new tax year ie Jan 1st) Ok lets say XYZ has a hard time and it
drops to $50 by Dec 1998. You have a $5000 unrealized loss! Ok, lets say
you have had a good year but, you want to lower your taxable income with
this loss that could have if you sold. So let's say you sell XYZ on or before dec
31 and you have the $5000 loss to put on schd D. Of course you still think
XYZ is a good long term holding so you buy it back right away @50 (actually
it doesnt matter what you buy it back at) Now you are long again 1000 XYZ.
And you have a realized $5000 loss to put on your taxes! Bingo right?
WRONG! The IRS looks at it like you still own the same property and you just
"WASHED" out a loss to put on your taxes. So they will not allow you to claim
that loss. (the loss is not forever gone, it will simply be neted out of what you
evenually gain or loss on the next sale of XYZ) It's unfair yes I know. Ok here
is where the 30 day stuff comes into play. If you wait 30 (so if you bought on
the 31st day) days after you sold XYZ you could rebuy it back and take the
new long position with having to worry about the WASH sale rule. However
not all is lost, the IRS will let you buy a similar stock in the industry or any
other stock for the time being, until that 30 days is up with out the wash sale
rule going into effect. The wash sale rule also works 30 days BEFORE. So if
you were to buy a 2nd lot of 1000 XYZ 30 days before you sold your first lot of
1000 xyz the IRS would say that you own the same property and that you are
net net 1000 xyz and have the $5000 realized loss to put on your taxes.
One sneaky thing you could do is...after you have sold for a loss to put on
your taxes you could then re buy the same position and then sell at a small
gain and that would take away the effect of the WASH Sale and then you
would just re buy again to go for the long haul and since your last trade was a
gain you would not have to worry about the WASH sale rule!
So basically its like this...if you are going to take a loss but re initate the
same position in the same stock, 30 days before or after you sell, you will
come into the wash sale rule. Because you own the same stock or property
but you have a loss in it.
You just have to think about it a little.
Again you can trade in and out of XYZ as many times as you want but if the
last trade you do is a loss and you go back in long with in 30 days before or
after and you do not close that position by the end of the year you will be hit
with the wash sale rule.
I hope this is clear enough.
As for this Mark to Market method for trader status.
The only day Mark to Market is really going to matter is the beginning of the
year and the end of the year. If you have an open position of 1000 XYZ on
DEC 31...on your tax form you will mark that position to the market close
price and take it as a loss or a gain depending on what you bought it at. That
new price will be your new cost basis on Jan 1st 1999. So that is why a
wash sale rule does not apply to those that choose the mark to market
method...because it's like they close out all of there positions at the end of the
year...so it's impossible to WASH out a loss but remain in the same stock
/property.
Personally I don't see what is so cool about Mark to market...they need it for
dealer's since they have inventory all the time and they need a inventory value
to net a gain or loss at the end of the year. well anyway...
happy trading and I hope this helps
|
