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Old 08-19-2012, 04:59 PM
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Disallowed Wash Sales

I have a question regarding disallowed Wash Sales on my return and would appreciate any help or guidance...

I have a bit of a mess with my 2011 wash sales as reported by TD Ameritrade. Basically, I have about $90,000 in disallowed wash sales, but I ended the year 100% cash and can't figure out why these losses aren't being factored back into my cost basis for subsequent trades. I did a lot of short term trading as I moved in and out of the market in the final months of the year, but on a net basis I lost a significant amount of money during this period. A lot of my trading occurred in December, which may affect some of these trades, but not all.

Are problems with these types of wash sales common? My accountant and I haven't encountered this before. Is it possible that I need to consult an accountant who specializes in securities trading? If TD Ameritrade is reporting these wash sales to the IRS, are there adjustments that I might have to make to deduct these losses, or am I basically stuck with the numbers as they are reported on my G&L statement and 1099?

Many thanks to anyone with advice to offer...



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Old 08-20-2012, 04:50 AM
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“Basically, I have about $90,000 in disallowed wash sales, but I ended the year 100% cash and can't figure out why these losses aren't being factored back into my cost basis for subsequent trades. A lot of my trading occurred in December, which may affect some of these trades, but not all.“Are problems with these wash sales common?”----> I think so; when trading or investing in the same stocks (or options on the same stocks) over and over again, hundreds or even thousands of wash sales may be generated throughout the tax year. All of these need to be reported on IRS Sche D/ Form 8949. Even though losses from wash sales are not allowed to be taken, the sale still has to be reported in the year that it was made. In addition, wash sales need to be calculated across all of your brokerage accounts. They also need to be calculated for what the IRS calls "substantially identical securities" which includes option trades on the same underlying stock or security. This is unbelievably complex and is above and beyond what is reported by most brokerages. You cannot depend on your broker profit and loss report because they use the same broker profit loss statements as mentioned above .
“ My accountant doesn't seem to really have a handle on them.”-------->I guess so as described above;as we know,calculating wash sales is not easy esapecailly when you performed many transactions thruout the tax year! The IRS expects you to record each and every wash sale throughout the tax year. First you need to identify trades that have been closed at a loss. Then you have to scan backwards and forwards in time to see if you re-purchased the same or "substantially the same" securities within a plus or minus 30 day window.If you did then, you need to record a wash sale adjustment line on your Sch D/New Form 8949. You also need to adjust the cost basis of the re-purchase shares, moving the loss forward or backwards to this whatever trade triggered the wash sale. You cannot deduct a loss from a wash sale even if it is not reported on Form 1099-B.You need to report a wash sale transaction on line 1 or line 3 of Form 8949 with the appropriate box checked and need to complete all columns. Enter "W" in column (b). You neeed to enter as a positive number in column (g) the amount of the loss not allowed. You should see the instructions for Form 8949, columns (b) and (g), later.
http://www.irs.gov/pub/irs-pdf/f8949.pdf. But it gets even more complicated when you do not re-purchase an equal number of shares. The loss cannot be immediately claimed for tax purposes. So, the loss can be claimed when it is finally disposed of, other than in a wash sale. the wash sale rules really only apply when the transactions bridge two tax years.
“Is it possible that I need to hire an accountant who specializes in securities trading?”-------->In my opinion, you can get professional help from either a tax accountant doing/pecializing in sec. trading or the brokerage firm as long as our brokerage firm can not only auto-identify different complicated wash sale scenarios, but also can calculate wash sales across different accounts very accurately. Now many brokers have provided detailed cost basis report with calculated wash sales, but confined to report wash sales within the same account and for the same CUSIP, taxpayers are responsible for reporting wash sales for identical as well as substantially identical securities, across all owned taxable accounts.

“ If TD Ameritrade is reporting these wash sales to the IRS, are there adjustments that I might have to make, or basically do I simply have to trust that their numbers are correct?”-----> I ma nOT quite sure, however, in general, I guesss you can trust TD Ameritrade; interactive Brokers includes wash sales on daily, monthly and annual Activity Statements for all 1099-eligible accounts, as required by the IRS. Note however that there may be a timing difference with year-end recognition impacting the annual statement. Beginning in 2011 losses disallowed due to wash sales are reported to the IRS on securities purchased and sold after January 1, 2011. Please refer to the sections on 1099B reporting and form 8949 for more information.
In general, the loss cannot be immediately claimed for tax purposes. So, the loss can be claimed when it is finally disposed of, other than in a wash sale; the wash sale rules really only apply when the transactions bridge two tax years.
For reference, wash sales are best avoided (if possible) in order to preserve the tax-benefit of the capital loss. Wash sales can be avoided by waiting until the 61-day wash sale period is over before repurchasing exactly the same investment. If you, as an investor, wish to stay invested in a similarly-performing investment, you could purchase securities that are similar but not substantially identical to the investment that was sold off. Sometimes having a wash sale might turn out to be beneficial on a tax return. you might find that your capital gains are going to be taxed at the zero-percent tax rate, in which case have a capital loss to offset those capital would result in no tax savings. In such a case, you could purchase the same or substantially identical securities in an effort to defer the loss into another year in which the loss might be more valuable.



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Old 08-20-2012, 07:45 AM
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Wnhough... Thanks so much for your reply, which is extremely helpful. Since I am relying on documents provided by TD Ameritrade and, as you say, they have tools for calculating these sales for me, it seems unlikely that a mistake has been made -- do you agree? If many of these trades occurred at the end of the year, is it possible I'd have an extensive loss carrying into 2012?

Another question... I have extensive loses already this year andmanaged to lose all of my gains (and then some) from 2011. My understanding is that clawback provisions (enabling me to apply losses this year to a prior year's gains) have been eliminated by the IRS. My tax bill from 2011 will essentially wipe out my savings, but at the same time I know I'll have tens of thousands in losses carrying over for future years (little good they'll do me...). That seems crazy to me. Is there anything I can do to apply my 2012 losses to my 2011 gains?



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Old 08-20-2012, 10:56 AM
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Wnhough... Thanks so much for your reply, which is extremely helpful. Since I am relying on documents provided by TD Ameritrade and, as you say, they have tools for calculating these sales for me, it seems unlikely that a mistake has been made -- do you agree?”----->I do NOT know; I am NOT a stock broker.
“If many of these trades occurred at the end of the year, is it possible I'd have an extensive loss carrying into 2012?”----->I guess it depends as long as the losses are allowed to be deductible capital losses. So you need to talk to your brokerage firm , TD Ameritrade(TD Ameritrade has all the transaction info). Can’t tell you anything on your transaction situations.
“Another question... I have extensive loses already this year andmanaged to lose all of my gains (and then some) from 2011. My understanding is that clawback provisions (enabling me to apply losses this year to a prior year's gains) have been eliminated by the IRS. My tax bill from 2011 will essentially wipe out my savings, but at the same time I know I'll have tens of thousands in losses carrying over for future years (little good they'll do me...). That seems crazy to me. Is there anything I can do to apply my 2012 losses to my 2011 gains?”----> As described previously, you can avoid wash sales by waiting until the 61-day wash sale period is over before repurchasing exactly the same investment in 2012. If you, as an investor, wish to stay invested in a similarly-performing investment, you could purchase securities that are similar but not substantially identical to the investment that was sold off. Sometimes having a wash sale might turn out to be beneficial on a tax return. you might find that your capital gains are going to be taxed at the zero-percent tax rate, in which case have a capital loss to offset those capital would result in no tax savings. In such a case, you could purchase the same or substantially identical securities in an effort to defer the loss into another year in which the loss might be more valuable.



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