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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3374
Experience:  Over 20 Years experience
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Given my last question and answer pasted below: "For my 2012

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Given my last question and answer pasted below:
"For my 2012 taxes, my question involves only the treatment of a speculative stock options account:
3/8/12 - Opening balance $100,000
8/5/12 - Highest balance the account reached: $199,864
12/31/12 - Ending balance at year-end: $27,365
268 option transactions during 2012
On my tax form 8949, my accountant lists column D (proceeds) as +19,059 and column E (cost or other basis) as +18,466, an d column H (gain or loss) of +593.
How can I have a taxable gain if I have a net loss on the account of nearly $73,000 for the year? In other words, is it likely my accountant did something wrong here? Thanks."

Lev says:
10:10 PM
The wash sale rules apply to losses from sales or trades of contracts and options to acquire or sell stock or securities. They do not apply to losses from sales or trades of commodity futures contracts and foreign currencies.
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Is the following statement substantially correct or incorrect?

"Every time you have a wash sale you adjust the cost basis of the replacement securities. You end up getting the benefit of the loss(es) as soon as you are out of "substantially identical" securities for a 31 day period. That can be in the same year or in a future year."

Randalltax :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

Randalltax :

The statement you ask about is correct. On a wash sale, the basis gets adjusted. Let's take a look at a simple example:

Randalltax :

You buy a stock for $10. You sell it for $8, but the next day, you buy it back for $9 hoping it will go back up. You sell the second purchase 60 days later for $9.50.

Randalltax :

On the first sale, you see a $2 loss, but because you bought the replacement within the 30 day window, you cannot take the loss. So, for tax purposes you have a $0 gain or loss.

Randalltax :

If you did not adjust the basis of the second purchase, when you sell the second stock, you would have a 50 cent GAIN, not a loss. And for the year, you would have a 0 loss plus 50 cent gain for a 50 cent gain total. But you lost money along the way.

Randalltax :

By increasing the second purchase by the disallowed amount, in this case $2, your second purchase effectively costs $9 + 2 = 11. When you sell for $9.50, you have a loss of $1.50

Randalltax :

This is correct total for the whole year. You lost $2 on the first trade and made .50 on the second, for a net loss of $1.50

Randalltax :

But for taxes, it appears as though you lost 0 on the first trade and lost 1.50 on the second, which ALSO TOTALS 1.50 for the whole year.

Randalltax :

Hope this helps

R. Klein, EA and 2 other Tax Specialists are ready to help you