Wash Sales

2009-12-10 by

Today TaxMama hears from Kay in New Jersey, who has done some thinking. “I am an investor in the stock market. How can I avoid a wash sale? For example I own 100 shares of stock A and want to sell it to help offset my capital gains for 2009. However I do not want to wait 30 days to buy that same stock. Any advise on how to avoid the wash sale problem?”

First of all, let’s explain wash sales to folks: When you sell a stock and buy it back within 30 days before or after the sale, IRS rules treat that, essentially, as if you had never sold the stock at all. You just adjust the basis for costs.

So, Kay, you can’t avoid that trap, at least not legally. Or at least, not in the same account.

I suppose you could sell the stock in one brokerage account and buy it in another. But I don’t think you can do that either.

Of course, you could consider selling it in your brokerage account and buying it back in your IRA. But…that’s been outlawed too, in recent rulings. So, I can’t see any way to avoid it except to wait at least 31 days to replace the stock. For more advice, talk to your broker, or a tax expert on investments.

And remember, you can find answers to all kinds of questions about capital gains and losses and other tax issues, free. Where? Where else? At TaxMama.com.

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IRS Publication 550, Chapter 4
Explanation of Wash Sales

# | Posted in Tax Quips | Comments » (8)



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  1. DON Says:
    December 10th, 2009 at 06:56 am

    I THOUGHT WASH SALES RULES PERTAIN TO LOSSES. IF THE TAXPAYER SELLS AT A GAIN TO OFFSET LOSSES, THERE SHOULD BE NO PROBLEM, RIGHT?

  2. Eva Rosenberg, Your TaxMama® Says:
    December 10th, 2009 at 07:09 am

    Hi Don,

    Yup. You cannot deduct the losses from wash sales. That's the whole point. So if someone wants to harvest losses to offset gains…they can't.

  3. Lucie Sample Says:
    December 10th, 2009 at 07:53 am

    Sorry, Kay. TaxMama is right. You have to reduce your loss by the cost of the new stock (assuming equal shares). Now if you sell the stock at a gain, you have no wash sale.

    The IRS/Congress got smart some years back and figured out that folks were taking their paper losses but immediately buying back their positions, resulting in no realized loss. So you either have to buy 31 days before or wait till 31 days after the sale to buy back.

    Happy Chanukah everyone!

  4. Jeff Eckles, Registered Investment Advisor Says:
    December 10th, 2009 at 08:41 am

    Kay- If I am reading your question correctly, your intent is to capture the loss without being "out" of the stock for the 30 days. There is a technique to do this and it is legal, although you waited too long for the current tax year: Double your position in the stock today then 31 days from now, you sell half your position. You may then take the loss on the original tax-lot of shares.

    One other angle if you wanted to do this now (before the end of the tax year) that works in SOME instances: Sell your shares then purchase a similar investment such as an index that moves closesly with (correlates to) the stock you sold. Then 31 days from now buy back your original stock and sell your temporary investment (ie, you sell citibank, but concurrently buy the financials index via an ETF- Exchange Traded Fund- so that you capture the movement in the financials while being out of your original stock).
    Happy Holidays to all- JE

  5. Rachel Unell Says:
    December 10th, 2009 at 09:10 am

    Although this doesn't address Kay's objective about using the loss to offset current year gains, traders are allowed to buy back the shares within the 30 day period and add the disallowed loss to their new basis.

  6. Kay from NJ Says:
    December 10th, 2009 at 09:57 am

    Hi All,
    Thanks for your advice.

    Jeff, Yes that is exactly what i wanted to do (as stated in your first paragraph). I thought of this but wasn't sure if it was legal or not.

  7. Gregory Noe Says:
    December 10th, 2009 at 11:06 am

    There is a straight forward approach that no one suggested…use a professional. They are exempt from wash sale rules.

  8. Nelson Says:
    December 10th, 2009 at 11:35 am

    One other way is have a trusted friend to buy it with a loan from you. Then buy it back after 31 days

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