Tax planning and compliance for investors
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By Kaye A. Thomas
Updated June 1, 2007
Regulations provide rules for matching sales and purchases under the wash sale rule.
There are situations where the wash sale rule is difficult to apply because purchases and sales don't match up in an obvious way. This page explains the matching rules that apply in these situations.
For background on the wash sale rule, see Wash Sales 101.
The general rule governing more complicated situations involving wash sales is to apply the rule chronologically. If you have multiple losses from sales of the same stock, you look at the earliest sale first. Match those shares with the earliest shares you bought in the wash sale period until you've matched all the shares — or until there aren't any more purchases to match with the sale. Examples below will make it clear how this works.
There may be times when you can't tell which sale took place first. For example, you may own two separate blocks of 100 shares bought at different times, and enter a single sell order for 200 shares. If you can't tell which shares were sold first, then you apply the wash sale rule according to which shares were bought first.
Example: On March 10 you sell 100 shares of XYZ at a loss. On March 15 you sell another 100 shares of XYZ at a loss. On March 20 you buy 100 shares of XYZ.
One of your sales is a wash sale — but which one? You aren't allowed to choose the one that produces the best result. You have to apply the wash sale rule to the first sale.
Example: On March 10 you sell two blocks of 100 shares of XYZ at a loss. There's no way to tell which block sold first. On March 15 you buy 100 shares of XYZ.
In this situation you have to apply the wash sale rule to the shares you bought first.
Note: The regulations don't provide guidance for the situation where you don't know which shares were bought first. For example, you may have entered a single order to buy 200 shares, which your broker executed by buying two lots of 100 shares each at different prices.
You may run into a situation where you bought more "replacement shares" during the wash sale period than the number of shares you sold.
Example: You own 50 shares of XYZ. On March 31 you buy another 50 shares at $40. On April 2 you buy another 50 shares at $42. On April 10 you sell the 50 shares you owned previously at a loss of $10 per share.
It's clear enough that the sale of 50 shares is a wash sale. But you need to know which block of new shares are the replacement shares. The basis of the replacement shares will be increased by $10 per share — the amount of the disallowed loss. Also, the holding period of the replacement shares will include the period you held the old shares you sold. These factors will affect the gain of loss you report when you sell one of these blocks of shares at some future date.
As in the case of multiple losses, you apply the wash sale rule chronologically. That means the earliest shares you bought are considered replacement shares. In the example above, the $10 loss would be added to the basis of the shares bought on March 31. The shares you bought on April 2 aren't affected by the wash sale rule, even though you bought them in the wash sale period.
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