Wash Sale

[Christian]

I have been a stock investor since 1965. I do not engage in short term stock trading and have studiously avoided wash sales. This year an individual came in and to my utter astonishment presented me with a single brokerage account in which he traded over $5,400,000.00 in securities (all single stock trades). In looking at the yearly total I found he had lost some $5,441.00 for the entire year or so I thought. He had some $38,000 in disallowed wash sales and was left with a slightly lesser amount amount of taxable short term gains. He had made some profitable trades and basically ended up paying tax on those and losing virtually all the offsetting losses to wash sale rules. What the heck did they do with those losses as I see they are not retained for deduction in follow on years ? Is there no recovery for these ? His trades were all in the same securities meaning he traded the identical stock multiple times in the same 30 day period.  

 

[Lion EA]

You add the unallowed loss on the sale of the stock to the basis of the stock purchased. You're kicking the can down the road.

[Christian]

OIC. So if he sells the security at a later loss it will increase his loss or if a profit decrease his gain. Of course, as he had to cough up over $11,000 on those sale gains he lacked appreciation of this fact. Good grief the next question is does his broker recalculate  the basis on those shares?

[Lion EA]

He should ask his broker.

[JohnH]

The broker will likely say "ask your accountant".    And around & around it goes...

[Lion EA]

I once had a client who was a broker with over 4400 trades, most of them wash sales. I charged him a bundle to create a spreadsheet to "move" each unallowed loss to the adjusted basis of the next purchase. After a couple years, his wife quit funding his trading. His only income was his own commissions, because he spent all his time on his own account.

[JohnH]

Sounds like the story of the day trader who won the lottery.  His friend asked him what he was going to do with his newfound wealth.  He replied, "I'll probably just keep day trading until I lose it all."

[Christian]

That is a point well made. It was clear to me this man had become "hooked" on short term trading which he knew little or anything about. He got hooked for over eleven grand in profits and says it's all over. Who wants to place a bet on his coming back next year ? 

[Roberts]

About 2 years ago a guy freaked out that his wife had about $100 in wash sales from Fidelity. Someone it was my fault and I needed to monitor her trading. I have absolutely nothing to do with her account and he couldn't really figure out how I would monitor it.

 

Have a new client this year who admits he has day traded for years and has a massive loss that carries over every year. $125k I think and he literally has less than that in total net worth from what I can tell.