Wash Sales

[Joel]

Taxpayer purchased 1000 shares of stock at $10.00 each. Investment $10,000. Six months later purchases 500 more shares at $5.00 for an additional investment of $2,500.00. Two weeks later taxpayer sell all 1500 shares at $4.00 Proceeds $6,000. Loss $6,500.00 Broker states that the sale is a wash sale and that the loss can be only $6,000 and that the loss on the sale of the 500 shares ($500) is deferred because he bought the shares within 30 days before or after the sale date. If this wash loss is deferred, then to what is it deferred to and when will it be recovered?

I say it is not a wash sale as the taxpayer no longer owns any shares of the stock.

[Gail in Virginia]

Technically, it is a wash sale, but since all of the stock was sold you add the cost of the shares involved in the wash sale to the basis and end up at the same place as if it weren't a wash sale because it all was sold. I am assuming that more than 30 days has passed since the sale and the taxpayer did not purchase this stock again. At least, that is the way that I understand this.

[Lion EA]

And watch out for December activity. You may need their January statement for the next year to see if they bought/sold. But, in general, if they liquidate their entire holding in a stock by year end, wash sales or not, you'll have the same bottom line.