<<Tax Question: I you sell a stock and buy it back within 30 days, you can not write off you losses. Does this mean if you sell the stock and buy back the stock within 30 days, your gains are not taxable? Assuming that you made money when you sold the stock.>>
I am going to give this a go ... N.B., I am not a CPA!!! You should consult your tax attorney or accountant before you file your return ... I do not guarantee the accuracy of any of the following statements and would appreciate any corrections or amplifications from other, more sagacious, thread members!!!
Let's square the Wash Sale Rule up: The rule says that an investor may not earn a tax benefit from selling a security at a loss if he/she re-acquires that security, or one substantially identical to it within a 30 day period prior to and after the sale.
First, the clock counting the 30 days starts on the next day. E.G., if you bought the stock on November 24th (Trade Date), the clock begins on November 25th ... then just add 30 days.
Second, the "substantially identical clause" tries to close out your ability to purchase a "different" security with the same investment performance ... e.g., an option, a convertible, or a warrant ...
Third, you must count 30 days on either side of the transaction for the trade to not fall victim to the Wash Sale Rule. This sounds a bit squishy, but if you are identifying specific lots, this prevents you from looking at a discrete purchase (that may have been a part of a series of purchases ... "averaging down," in my case!), without considering the purchases around it.
e.g.,
100 XYZ purchased on 11/16/95 @ $40
100 XYZ purchased on 11/10/98 @ $20
100 XYZ sold on 12/01/98 @ $30
... the sale is a Wash Sale even if you are identifying specific tax lots ... the sale was within the 30 days on either side period ... an you have to switch such a transaction to LIFO ... you cannot claim that you were selling the 11/16/95 lot at a $10 loss ... so, you will have a short-term capital gain, taxed as ordinary income (to the extent that your capital gains exceed your capital losses in aggregate) ... which sucks.
Fourth, if you have fallen victim to this rule, you cannot claim the loss ... as it is considered a Wash Sale. But, you can add the unclaimed loss to you cost basis ... so you will get some "benefit" when you ultimately sell it.
Fifth and finally, if you have made a gain on a sale and then bought the stock back within the 30 days ... you have to pay the gains.
!!!Again, consult you tax attorney or your CPA to get a more accurate picture of this tedious rule!!!
Please correct me if I am wrong.
--Duker |
