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Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (92)	2/19/1998 12:56:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 1383

Thanks Colin, I know you have answered wash sales questions many times, and I've tried to keep up with all of them- even thought I understood them. However I still have two questions, one very basic, and one of concern to at least those active traders who don't get TRADER status. A) From IRS Pub 550: (1995- latest one I have) "A wash sale occurs when you sell stock or securities at a loss and within 30 days before or after the sale you: 1) Buy substantially identical stock or securities......" I buy XYZ and hold it for 3 days, selling it at a loss. What I bought was of course EXACTLY identical to what I sold, and was bought less than 30 days before I sold it. Is this a wash sale, or does this rule apply only to subsequent blocks (i.e., purchased after my original PURCHASE) of substantially identical securities? (I think I understand the stuff about smaller/larger subsequent blocks, options, etc.) Hope that one was easy. Now for the second B) Loss and gain on the same day. "Loss from a wash sale of one block of stock or securities cannot be used to reduce gains on identical blocks sold the same day." A couple of scenarios: a) I buy 100 shares of XYZ at $50. Next day the price has dropped and I cost average with another 100 shares at $46, so my average cost is now $48. Three days later I sell 200 shares at $49. First block is a wash sale, right? Do I pay tax on my net gain of 200($49-$48) = $200, or on 100($49-$46) = $300 because the wash sale is disqualified from my basis by the same day sale rule? b) A SOES style daytrader plays 1000 share blocks of INTC all day long, making 10 separate full-turn buy/sell trades. Say 7 of them are losses totalling $2000, and 3 are winners totalling $2000 (including the commissions in all cases). His net gain for the day is zero. Does he pay no tax, or tax on his $2000 on the win side? Does it matter if he has TRADER status? Thanks in advance, Dan