Chat Dan: day traders and the "wash sale" rule
Dan,
Are you familiar with a thing called a "wash sale" rule as related to the IRS and taxes? This is probably a question best answered by a CPA, but since it is something that could potentially affect day traders [day traders as classified by the IRS], I thought I'd toss it out here on the Z-thread to see if you, or any others here, are more familiar with the "wash sale" rule than I am...
I read an article in the 22 Feb '99 issue of the Washington Post National Weekly Edition, called "Who's a Trader and Who's Not?" by Albert B. Crenshaw. Here's a quote...
"...day traders need to watch out for the 'wash sale' rules. A wash sale occurs when a taxpayer buys a security, sell it at a loss and buys it back again within 30 days. Such a series of transactions allows taxpayers to create a loss without changing their real economic position, so deductions are not allowed for losses generated by wash sales. Instead, the loss must be added to the 'basis' (in effect the cost) of the security when it is purchased the second time, and taken into account when it is finally sold."
I'm not sure I exactly understand how flipping a stock during the day can create a loss without changing one's "real economic position". It seems to me that if I buy and sell a stock at a loss during the day, my "real economic position" has been altered beyond any shadow of a doubt...except possibly as a technicality, as viewed by the IRS.
I know this is a complicated subject, and I certainly don't expect any detailed response. I was mainly wondering if you were familiar with the "wash sale" rule, and if so, what you might think about it in general.
Thanks,
Ice |
