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Strategies & Market Trends : Trader J's Inner Circle -- Ignore unavailable to you. Want to Upgrade?

To: Baghul who wrote (47)	11/2/1998 10:24:00 AM
From: Trader J	Read Replies (2) \| Respond to of 56535

Bahul, Not being a tax person I would hesitate to answer. But I will give you my interpretation and how I file. If you want to deduct any of the loss of the 50 @ $90/shr., don't buy any until after the wash sale expiration period. I too, have tried to receive a definition of the term "like or similar" number of shares, and nobody has been able to give me an answer. Uncle Sam is trying to protect agains the person that takes a loss on a stock on 12/31, only to pick it back up on 1/1, thus reducing income. As I understand it and as I play it, buying any number of shares in an issue that you have had a loss in 300 days previous constitutes a wash sale and is not deductible. Sorry I don't have more concrete answers, but a lot of tax people are not that familiar with trading. Jeff

To: Baghul who wrote (47)	11/2/1998 10:18:00 PM
From: kendall harmon	Read Replies (1) \| Respond to of 56535

This is the buy buy sell scenario that i mentioned in my response to traderj. In order to answer your question exactly, you need to specify the time periods precisely which you are talking about.

To: Baghul who wrote (47)	11/7/1998 8:11:00 AM
From: kendall harmon	Read Replies (1) \| Respond to of 56535

O.K. Baghul, now that we are clear on the wash sale rule, to your question: "I understand that wash sale does not let you deduct losses in a stock that you buy within 30 days. The question I have is if you buy say 100 shares of XYZ at 80, then buy another 50 shares at 90. If you sell 150 shares at 85, you have gain on the first 100 shares and loss on the next 50. Does that mean that you can buy 100 shares in the next 30 days but should not buy 50 shares. I have asked a lot of tax people and can't seem to get a straight answer...." The only way I can answer this is to give (hypothetical) dates: You buy 100 XYZ at 80 on September 1 You buy 50 XYZ at 90 on September 15 You sell 150 XYZ at 85 on September 22 In this scenario, you have done a buy-buy-sell within 30 days so you trigger the wash sale rule. You must declare the profit on the 100 share trade on schedule D, which is 100x5=$500 (we again leave out commissions for this example). Your loss on the 50 share trade is 50x5=$250 and this is a wash sale loss. Now, here is the cruncher. You say: "Does that mean that you can buy 100 shares in the next 30 days but should not buy 50 shares." Of course, once you have triggered the loss sale rule, you can do either one. The problem is, you would not want to because if you do it within 30 days and then resell at a loss then this new loss will also be a wash sale. What is important to understand, however, is that whichever of these two you do, the basis of the newly purchased stock will be $250 more than the purchased price because you add the previous wash sale to it. Let us try a couple of examples: You buy 50 XYZ at 80 on October 1 You sell 50 XYZ at 86 on October 15 This action would lead to you declaring a profit of $50 on this trade since you add the $250 wash sale to the basis of the October 1 purchase. Note you declare it only because it is a profit (if it were a loss it would be another wash sale!) Now another example: You buy 100 XYZ at 83 on October 1 You sell 100 XYZ at 80 on October 15 This would be very bad. The loss on this sale would be $550 because you would add in the basis of the wash sale to the first 50 shares. HOWEVER, YOU COULD NOT DECLARE THIS LOSS YET BECAUSE IT FALLS WITHIN 30 DAYS OF A PREVIOUS PURCHASE. Thus you would go forward with a $550 wash loss which you could then add to the basis of any further purchase of this stock. So the answer to your question is that you are not restricted in what you can or cannot do, but whenever you trigger the 30 day period and the wash sale rule, your situation is complicated enormously. One last point: if the number of shares of stock reacquired in a wash sale is less than the amount sold, only a proportionate part of the loss is disallowed. Hope this helps.