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RE: Wash Sale Rules



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Wash sale rule should not affect the final tax bill of a short term trader/daytrader. Although you can not claim the initial loss from a stock that you have repurchased within 30 days, when you finally sell the repurchased stock, your cost basis for the final trade will be the cost of the repurchased stock PLUS the loss from the initial/previous trades, so in the end, your overall profit or loss is still the same. This is true ofcourse, assuming that all the trades for that particular stock are short term trades, i.e. held less than 12 months. If you hold the repurchased stock more than 12 months so that it becomes a "Long Term" gain or loss, then it is a different story. Actually, wash sale rule is intended for and affects only the "Long Term" gain/loss situations.

The only problem wash sale rule causes the short term/frequent/daytrader is the next-to- impossible burden of record keeping and listing on the schedule D. I have honestly tried to list every wash sale I had the previous year on my last year's schedule D, but after about 5 hours or so, totally gave up on it. Believe me, it IS impossible!

This year, I am going to file under the new "Trader in Securities" status with the "mark-to-market" option. When you do that, wash sale rule does not apply at all. It becomes very similar to the way the commodity trades are reported. The catch is, you have to be able to qualify as a bona-fide trader under somewhat strict IRS guidelines. This is all very new, and it seems like there is a lot of misinformation out there and any good/reliable guidance is very hard to come by. The best info/resource I could find was at

 http://www.greencompany.com/

I have not purchased any of their guides or services yet but am strongly considering it. I would also appreciate any feedback about them or any other source on this Trader Tax matter.

Hope this helps.

Regards,

Levent Erbora

-----Original Message-----
From:	Dan [SMTP:buchach@xxxxxxxxxx]
Sent:	Monday, February 22, 1999 10:54 PM
To:	RealTraders Discussion Group
Subject:	Re: Wash Sale Rules

Thanks for your explanation - what this appears to me to mean is that if one
daytrades stocks, or even trades in and out every few days, one could not
simply net out all profitable trades and all losing trades at the end of the
year and pay taxes only on the net gain or loss like you can with futures- the
short term stock trade losses would be not be able to be used if the same
stocks was repurchased within thirty days.  This would greatly increase the tax
bill - am I interpreting this correctly?  Seems like this would make it
impossible tax-wise for daytraders.

Are any of you stock daytraders out there dealing with this situation?

Thanks, Dan

Richard wrote:

> >Could someone please help  exactly what the IRS "wash sale" rule means,
> >and the tax impact to a stock day trader that goes in and out
> >frequently?
> >
> >Thanks in advance, Dan
>
> It means that if you want to take a loss on a stock for tax purposes, you
> cannot purchase that same security in "like and kind" for at least 30 days.
> This is to prevent people from getting a deduction without parting with the
> stock for at least awhile.
>
> Could have impact for day trading. If you claim a loss for a transaction
> and you repurchased the stock within 30 days, that loss could be disallowed
> under the wash sale rule. In that case, for tax purposes, your capital gain
> or loss will be treated differently.
>
> The IRS site has details.