Question

Wash Sale treatment for completely exited positions

Forum|Forum|1 year ago
August 27, 2024
1 reply
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Last year when my brokerage information was imported to TurboTax there was a significant amount reported as wash sales. It appeared that TurboTax used the gains reported on the 1099B and then subtracted the losses reported on the 1099B and then added the wash sales. This caused TurboTax to report gains and taxes owed.

When I look at the current gains and losses of my portfolio on my brokerage firm's site, it shows that I have a disallowed loss for some positions this year.

My question is how do I avoid TurboTax reporting that I have gains for disallowed loss this tax year? Will the following strategy work?

1) Completely exit positions that show disallowed loss. At the end of this year, the brokerage account will have no positions that had disallowed loss. My thought is that the 1099B will still show disallowed loss for these positions.

2) Wait to sell puts to buy positions in a separate IRA brokerage account after 30 days.

3) What I expect to happen is that when I import the brokerage info into turbo tax, is that turbo tax will attempt to add in the "disallowed loss" from the exited positions. Since I do not own any of those positions, I will remove that amount from the gain-loss calculation and will not "owe" taxes on a disallowed loss.

Does this sound like a reasonable strategy? Any other suggestions? Anything that I should be aware of?

TurboTax Home & Biz Windows

N

NCPERSON1

@rf_ee - I suspect you are overthinking it. If you just ensure that Turbo Tax MATCHES the 1099-B from the broker it will all work out.

And you may have done something wrong in Turbo Tax if you played with the wash sales; how was there a gain?????? can you provide the specific numbers?

it's just the loss that is disallowed, but it should not cause a loss to become a gain. Please review how the 1099-B is reported and what you reported to the IRS in Turbo Tax. You may be misinterpreting what occurred.

Let me provide an example as a way of explaining.

On June 10, 2023, you purchased 100 shares of ABC stock for $10 per share. (cost basis $1000)
On August 10, 2023, you purchased an addition 100 shares of ABC stock for $5 per share. (cost basis $500)
On August 15, 2023, you sold 40 shares at $4 per share. (sales price $160, cost basis $400 from the June 10 lot). There is a 'wash sale since you sold at a loss and purchased the same stock within 30 days on either side of the loss sale. No gain and no loss is able to be reported on the tax return. The loss is added to the cost basis of an existing lot.

your current cost basis would be:

The June 10, 2023 has the 60 remaining shares at a cost basis of the original $10 per share or $600 PLUS the disallowed wash sale of $240, so $840 in total).
The August 10, 2023 lot still has 100 shares with a cost basis of $500)

On August 16, you sell out the entire position at $3 per share and do not buy the stock back again any earlier than September 17!

Sold 160 shares at $3 per share. $480

Cost basis: $840+500 or $1340

Loss reported on tax return: $860

So let's reconcile that:

there were two purchases totaling $1500
there were two sales ($160 + $480) totaling $640
total loss of investments: $860!!!!! it matches the loss reported on the tax return.

does that make sense. Again, it's not as complicated as I think you are suggesting. Your strategy should be to ensure that what is in Turbo Tax matches what is on the 1099-B. The strategy is as simple as that!

fanfare

Employee

Assuming you are acting in one trading account, If you close all positions in a "wash sale"-involved security, you have no triggering buys that are carrying the "disallowed loss". It all cancels out. The broker is required to track all this for you.

None of this relieves you of your responsibility to provide details of wash sales on Form 8949 as required by IRS instructions on this matter..

@rf_ee