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

To: Investor2 who wrote (2208)	5/14/1999 8:49:00 PM
From: Nelson Chang	Read Replies (1) \| Respond to of 5810

>>>RE: Another Example of Wash Sale. 1. I bought 100 shares xyz at $26 and a week later sold at $25. Another week later I buy 100 shares of xyz at $20. I'm still holding those shares a year later. The sale at $25 is a wash sale, so I can't write off the $1 loss and I don't put it on my Schedule D. However, the IRS receives a 1099 saying I sold 100 shares of xyz for $25, which raises the audit alarm. What did I do wrong?<<< You did nothing wrong. And that wouldn't raise the audit alarm. You did everything correctly. And this is the nature of a wash sale. You cannot claim it as a loss. It gets figured, by raising the cost basis of your second buy - your cost basis for the 2nd buy is now $22.50 not $20. Eventually, when you sell your 2nd buy, at whatever price, your profit will be less. As if the loss was applied to your 2nd buy, rather than being reported on the Schedule D. The numbers add up in the end. Just do everything by the book.

To: Investor2 who wrote (2208)	5/14/1999 11:18:00 PM
From: Gorak Shep	Read Replies (1) \| Respond to of 5810

The sale at $25 is a wash sale, so I can't write off the $1 loss and I don't put it on my Schedule D. However, the IRS receives a 1099 saying I sold 100 shares of xyz for $25, which raises the audit alarm. What did I do wrong? First, Nelson's answer to you is WRONG. The first sale is a wash sale but this does NOT mean you do not put it on Sched D. You DO put it on Sched D for the tax year you sold it. Then, on the very next line, you write Wash Sale in the Description column and add the loss back in as a gain in the Gain column thus offsetting the loss for that year. This entry will make your totals match the 1099. When you finally sell the second position, you add the loss ($1, not $2.50, per share) to your basis.