Wash-sale question

Home Fairmark Forum Taxation of Investments Wash-sale question

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  • #1856
    Hootz
    Participant

    I read the “Wash Sale Details” on the forum, but I remain confused.

    I made purchases in a mutual fund in April, June and then from a dividend and capital gains reinvested last week. I have unrealized losses for each lot purchased. Can I sell any or all of the lots prior to year-end to realize the total loss? It seems not because of the dividend and capital gains reinvestments last week.

    Hootz

    #1857
    kaneohe
    Participant

    We are in similar but slightly different boats. Perhaps we can learn together but please confirm to be sure. I had turned off automatic reinvestment in my taxable account yrs ago perhaps because I didn’t want to have your problem. I sold some lots with losses last week and reinvested in a different fund. I thought I was home free. Belatedly I remembered that some time ago I had switched a high cost fund in my TIRA to the same low cost fund I had tax loss harvested. Since I was not thinking of harvesting losses at that time, I had distributions automatically reinvested in the IRA. This is a similar sin to what you are contemplating…………selling something for a loss and then within 30 days before or after the sale buying the same fund.

    My current thinking is this……..it is a wash sale and has the potential to negate the tax loss harvest you want. The good thing is that since you bought only a part of what you are selling (I assume) , it is a partial wash sale and only negates part of that tax loss that you are thinking about. In crude terms, if you have 100 shares that you hold at a loss
    and they generated a 10% distribution, you would have reinvested in 10 shares. If you then sell the 100 shares You then have a partial wash sale of 10 shares but would still have the loss on 90 shares. The loss that was negated by the wash sale is not gone forever for you. It is added to your basis on some set of shares so your gain in the future will be less (or loss will be greater).

    Google for wash sale and then after you get that google for partial wash sale. As I said I’m still wrestling with this beast so best to wrestle yourself too.

    https://www.irs.gov/publications/p550#en_US_2017_publink100010601

    has some examples of wash sales. If the link doesn’t get you directly there go the index at the very end and look for wash sales.

    • This reply was modified 2 years, 8 months ago by kaneohe.
    #1859
    Kaye Thomas
    Moderator

    If you sell all the shares you’ll realize the total loss. That’s because you won’t have any replacement shares after the sale. As explained in our article on matching shares, if you sell some of the shares, and have a purchase within the wash sale period due to dividend reinvestment, you’ll see part of your loss disallowed, but only for a matching number of shares.

    • This reply was modified 2 years, 8 months ago by Kaye Thomas.
    #1861
    Hootz
    Participant

    Kaye, thank you.

    I will sell all shares in the mutual fund so I can realize the total loss and avoid a wash sale. Hopefully, Vanguard will report this correctly.

    On the related, can I immediately use the proceeds from the sale to purchase another mutual fund that is not substantially identical?

    Hootz

    #1862
    Kaye Thomas
    Moderator

    I think you can be confident Vanguard will handle this correctly. And yes, you can buy a different mutual fund immediately without triggering a wash sale.

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