Typically when I receive ESPP shares after each quarter, I sell most of them right away. Of the shares which I have retained over the past 2 years or so, a small handful of shares are now old enough to be sold as qualified shares. (The share prices have remained pretty level for the past few years.) My questions is, should I sell all these qualified shares each time I sell the bulk of my newest shares--or will this trigger a wash sale? I would like to avoid the hassle of tracking wash sales if at all possible especially considering we are only talking about a few hundred dollars worth of old shares. Would it therefore be advised to allow the older shares to accumulate a few more years and sell them outside the 30-day window surrounding any future purchase/sale?
Is whether or not I sell the current shares at a cap gain or loss also a factor I need to consider? Please advise.

A "wash sale" only occurs when you have a sale for LOSS, and then repurchase "replacement" shares within 30 days (before or after sale). That does not appear to be what you are talking about.

I guess my "old" shares will almost always be at a gain, but what about the brand new shares I sell which 50% of the time might be down a small fraction by the time the sale executes?

I don't understand how you have replacement shares for the new shares. You're talking about making an additional sale, not an additional purchase. For the new shares, the only purchase occurring within the wash sale period is the purchase of those new shares.

Now, you may be keeping some of the new shares for whatever tax benefit you can get by avoiding a disqualifying disposition. Then you might have a situation like this: buy 100 new shares, sell 90 new shares at a small loss and 20 old shares at a gain, all transactions occurring in a short time frame. You still wouldn't have a wash sale, even though you end up holding 10 new shares that were purchased during the wash sale period for the sale of 90 shares at a loss. The reason is that the 10 shares were part of the same purchase that brought you the 90 shares you sold.

In any event, selling additional shares at a gain won't be relevant to the analysis. You'll only end up with a wash sale if you sell shares at a loss and hold shares you bought in a different purchase within the wash sale period.

Kaye Thomas
Fairmark Press

Hi, I have similar question but my situation is different.

I purchased ESPP shares previously. Currently the market price is lower than what I paid for, even after the 15% discount. Soon I will have another chance to buy share at 15% discount to the then market price. If I sell the old shares at loss within the 30 day window of the schedule purchase of the new shares, would the sales of the old share be considered wash sale?

Thanks.

I'm afraid there isn't any exemption from the wash sale rule for ESPP purchases, so if you want to claim your loss you should make sure your sale does not occur within 30 days of the new purchase. Also, you should be aware that in a disqualifying disposition of ESPP shares you have to report income for the discount even if you're selling the shares at a loss. The income is added to your basis, increasing your loss, so it may not matter if you don't run into the $3,000 capital loss limitation.

Thanks for the clarification.

I'm another question related to the income part on a qualified disposition. From the ESPP guide of this site, the compensation income is the less of the following:

1 The discount allowed on the stock, determined as of the beginning of the offering period (even though your purchase occurred at the end of the offering period);

2 Your profit as of the date you disposed of the shares, which is the difference between the value of the shares on that date and the amount you paid to buy them.

Now for example, the stock price is $25 at the beginning of offering period, and $20 at the end of the offering period, so I bought 100 shares at $17. So item 1 amounts to 100*($25-$17) = $800.

Now assume I make a qualified disposition and sell the shares at $15. This leads to a loss of 100*($17-$15)=$200 for item 2.

In this case, do I report no compensation income and $200 capital loss?

Thanks.

Kaamen

You misunderstand item 1. The discount as of the first day of the offering period in your example would be $3.75 (15% of $25.00). So item 1 would be $375. But it doesn't matter because you end up selling the shares at a loss. Your conclusion is correct: no income, and $200 capital loss.

Kaye:

Thanks for the reply. I realized that my earlier post did have the mistake you pointed out after reading the rules again.

Kaamen