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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: john rieck who wrote (2204)	5/13/1999 3:43:00 AM
From: Nelson Chang	Respond to of 5810

Hi john, Here we go again... >>>Question on wash sale rule: say I buy AMZN on 5/5/99 @ 140. on 5/6/99 I sell @ 138. I buy it back on 5/7 @ 142. then later that day it crashes and I sell (100 shares on all trades) @ 110. Now, can I use my big loss (142>>110) and elect NOT to bother with the tiny loss (140>>138) for tax purpses? Or does the wash-sale rule demand that I use the tiny loss, which would mean that I cannot use the big loss as a ST Capital Loss?<<< First off, your first trade (in 140, out 138) is a wash trade. Second, since you have closed out all positions, both losses are reported as ST capital losses and can be used to offset gains. So it is a wash sale, but it really has no relevance here. It's kind of late, so if I'm not making sense or completely wrong someone please clarify me. Regards

To: john rieck who wrote (2204)	5/13/1999 12:20:00 PM
From: Kaye Thomas	Read Replies (2) \| Respond to of 5810

Nelson's response is correct, but let me spell it out in a little more detail. On the first sale, you have a small loss, which you are not permitted to claim because it is a wash sale. However, the loss is added to your basis on the purchase of replacement shares. So you're treated as if you paid $144 on your second purchase ($142 purchase price plus $2 loss disallowed from the wash sale). When you sell the replacement shares at $110, you claim a loss of $34 per share, assuming there isn't another purchase that turns this into a wash sale. As Nelson indicates, you end up in the same position as if the wash sale rule didn't apply, claiming a total loss of $34 per share on the second sale instead of $2 per share on the first sale and $32 per share on the second sale. That's generally the way it works out if you close all positions before the end of the year and don't make any subsequent purchases within 30 days after the last sale. There's a complete guide to the wash sale rule in the capital gain section of my web site. Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com