Wash sale losses disallowed

Forum|Forum|7 years ago
May 31, 2019
6 replies
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I did a lot of trading in 2011 with just a few ETFs and hence incurred the "wash sale" problem. My real profit was about $2500, but Schwab has reported a net gain of about $9000, because many of the wash sale losses were disallowed. All my shares were bought and sold--i.e. I don't hold any shares currently. Does anyone know how I can avoid paying tax on 'profits' I didn't have??? This must be crucial for "traders". Can this be handled in Turbotax? I also read about a product called Tradelog. Anyone have any experience with this?

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TomYoung

Employee

It sounds to me like you are not entering the cost basis of the shares that, when purchased, caused the original wash sale.  You need to go through each sale of "replacement shares" and fix this.

Let's do a simple example:

Buy 100 shares of Company A for $10/share, sell 100 shares of Company A for $9/share.
Buy 100 shares of Company A for $12/share in the wash sale window, sell 100 share of Company A for $15/share.

I'd guess Schwab's 1099-B reads

Transaction 1 : Proceeds $900 Cost $1,000 Box 5 $100
Transaction 2:  Proceeds $1,500 Cost $1,200 Box 5 $0

If you ignore the fact that the $100 wash sale loss gets ADDED to the replacement share's basis you'd report:

Transaction 1 Gain/loss $0    (loss deferred)
Transaction 2 Gain/loss $300
Total $300

If you properly tell Turbo Tax that the second lot of Company A was "purchased in a wash sale window" (that's one of the choices under the "how were these shares acquired page" then Turbo Tax asks for the amount of deferred wash sale loss that needs to be added to the purchase price of this lot, changing its basis in this case from  $1,200 to $1,300.

Now when you enter these transactions in Turbo Tax you' report

Transaction 1 Gain/loss $0
Transaction 2 Gain/loss $200
Total $200

You might easily have had a succession of wash sales in the same security (sell at a loss, buy replacement shares, sell at a loss, buy replacement shares, sell at a loss, buy replacement shares) and, in theory, you'd have to work through each successive sale of replacement shares adding the increasing amount of deferred loss to each lot.  If, however, there were no replacement shares at year end (and no subsequent purchases within the wash sale window) you could safely roll all the deferred loss into that final sale of shares.  Your "proof" that you did it right is that the total gain/loss on these transactions equals your real gain/loss on these transactions.

If you're going to be a trader you need a good understanding of the wash sale loss rules and that includes the determination of HOW MUCH loss gets deferred.  In the above example 100% of the loss was deferred, but that's not always the case.  The amount of loss that gets deferred is in proportion to the number of replacement shares purchased to the number of wash sale loss shares that were sold.

Tom Young

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sgilgert

Employee

I just want to say that I am having the exact same issue with Schwab and am going to try to manually enter the information (Despite many many trades) rather than uploading to see if i can get it to match the actual gain/loss. i'll keep you updated.

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TomYoung

Employee

Schwab knows how to handle wash sales properly and Turbo Tax knows how to handle wash sales properly if the sales are entered properly.  So I don't know where you are going wrong.  It very well could be in your own understanding of the proper tax accounting for wash sales.  There's just not enough information here.

For example, you've said you've bought and sold everything and don't hold any shares currently.  If by "currently" you mean "at 12/31/2011" (and no subsequent purchases within the wash sale window) then you would have no deferred losses from wash sales at year end.  If by "currently" you mean "today" then you probably *would* have deferred losses from wash sales at year end.  The two situations produce very different reported gains and losses for 2011.

Boiled down, if you buy replacement shares after reporting a loss on a sale then the loss on the sale is deferred in proportion to the ratio of the replacement shares divided by the shares sold.  The deferred loss is added to the basis of the replacement shares.  When the replacement shares get sold the deferred loss is realized.  If this buy/sell activity all happens within the tax year then there is no deferred loss and your net gain or loss is simply the difference between the cash paid for the stock vs. the cash received on the sales.  If the "sell" part of that buy/sell activity occurs in the subsequent tax year then the loss *is* deferred.

Tom Young

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codad1Author

Employee

Thanks for the quick reply.

I did not hold any positions as of 12/31/2011.

My year-end summary fro Schwab lists the hundreds of trades and with each entry lists the net proceeds, the cost basis, the wash sale loss disallowed, and the realized gain or loss.  At the bottom, the columns are added up, and the realized gain is the total proceeds minus the cost basis, and then minus the 'disallowed' loss, which results in a larger gain, as I mentioned initially.

What I have NOT done yet is enter the data into Turbotax, to see if the 'final' result is in line with my real gain ($2500) OR what Schwab has at the bottom of the report ($9000).  I will do that soon and then I can update my post.

I also understand that the cost basis calculation is done differently in 2011, and I'm wondering about that.  I didn't have this problem in 2010.

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sparkyMike1

Employee

Get Trade Log software...look it up! It will make it MUCH easier!!!

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davemaryd

We sold shares at a loss from two bond funds. The 1099-B split both sales into covered and uncovered long term. The box D transactions had small amounts Wash Sale disallowed while the Box E transactions did not. How can I tell if any or all of the Box E losses are disallowed or not?

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PattiF

The sales that were listed as uncovered were purchased before reporting of the purchase date was required to be reported by the brokerage firms. A wash sale is a rule that doesn't allow you to deduct losses when replacement stocks or securities were purchased within a 30-day period before of after you sold substantially identically stocks. The brokerage firm would have indicated if this occurred on the Form 1099-B. It would have been reported if there were any.

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necessindy2020

All you did is tell me what I already know. Try answering the question.

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amedawar

No they can't fix this.

They just told me this was my fault!!! Ridiculous.

ReneeM7122

No, it's definitely not your fault. The wash sales error is due to rounding. If a wash sale adjustment is $0.49 or less, then it is automatically rounded to zero by the software. This type of rounding is allowed by the IRS but unfortunately, zero is not a valid value for this field on the 1099-B form, so it causes an error. To resolve the issue, here is a solution that might work for you instead of mailing. You can edit each individual transaction and delete the amount entered in the wash sale adjustment if it is $0.49 or less. This should clear the error message.

To do this, you will need to revisit the input section for the Form 1099-B transactions. Use the following steps:

On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
This opens a box where you can type in “1099-B” and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
The search results will give you an option to “Jump to 1099-B”
Click on the blue “Jump to 1099-B” link
Click Edit beside the institution name
Click Edit beside each transaction that contains a wash sale adjustment amount of $0.49 or less
Delete the wash sale adjustment amount and click Done

@amedawar

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de_prof2003

I tried the suggested fix, deleting the amount by following the instructions that our expert above noted, and that solution would not work. The error prompt keeps coming back in the income wrap up and will not let me proceed further.

Why are we being told this if the solution does not work?

What to do now?