What are WASH SALES?

Help, How do I treat this wash sales?

• 10/1/2011 Buy ABC 300 shares @ $20 10/2/2011 Sell ABC 300 shares @ $10 10/8/2011 Buy ABC 300 shares @ $11 10/9/2011 Sell ABC 300 shares @ $12 10/12/2011 Buy ABC 300 Shares @ $11 10/13/2011 Sell ABC 300 Shares @ $12 How do I treat this wash sales for tax purpose? 10/2/2011: 6000-3000=3000 loss 10/9/2011: 3600-3300=1000 profit 10/13/2011: 3600-3300=1000 profit Do I treat this as 1000 loss?

• Answer:

  First, a review of the basic rules: A wash sale occurs when you sell a stock at a loss and, within 30 days, buy that stock back. You cannot deduct losses on a wash sale, instead that loss is added to the cost basis when you buy the stock back. Second, applying the rules: Your transaction on 10/2 was a wash sale with a disallowed loss of $3,000 The disallowed loss from 10/2 is added to the cost basis of the 10/8 buy making the cost basis of this stock $21/share. The 10/9 transaction is a loss sale with a disallowed loss of $2,700 The disallowed loss from 10/9 is added to the cost basis of the 10/12 buy making the cost basis of this stock $20/share. The 10/13 transaction (assuming you didn't buy ABC again within 30 days) is a loss of $2,400. This is your final result and the total short term loss you would report for these transactions.