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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Capital Gains and Losses
Satisfied Customers: 263
Experience:  Over 20 Years experience in resolving tough tax cases
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My daughter is a musician and makes almost no money. Her career

Customer Question

My daughter is a musician and makes almost no money. Her career has some
hopeful signs and I suspect in one to two years she could make some real money.
She bought Tesla stock at $26/share years ago and now it is at $247/share. Currently,
she does not make enough income to pay capital gains taxes. The stock is in a taxable account.
Is it OK to sell Tesla now, avoid the tax, and then buy it back soon after (as she has
fallen in love with the stock)? Does she have to wait any specific length of time to buy it back?
Thanks,
***** *****s
Submitted: 2 years ago.
Category: Capital Gains and Losses
Expert:  CGassist.168 replied 2 years ago.
Q1: Is it OK to sell Tesla now, avoid the tax, and then buy it back soon after (as she has fallen in love with the stock)? A1: In brief, it sounds as if your daughter may fall into the 10% or 15% tax bracket. If so, she will not have to pay any capital gains tax. You can refer to the following link for the 2015 income tax brackets. http://taxfoundation.org/article/2015-tax-brackets Q2: Does she have to wait any specific length of time to buy it back?A2: The 30-day rule ("Wash sale rule") applies as follows. SEE BELOW: The 30-day rule in the stock market -- commonly referred to as the "wash sale" rule" -- affects the taxable gains and losses on stocks you sell. The purpose of the rule is to prevent you from selling stock for a tax loss and buying it right back because you still like the stock. Capital Losses If you sell an investment at a loss, the loss is called a capital loss and can be used to reduce your taxable income. Capital losses are credited against any capital gains you have for the year and excess losses can be used to reduce the amount of your regular taxable income. The wash sale rule prevents you from selling shares of stock and buying the stock right back just to take a loss you can write off on your taxes. The wash sale rule does not apply to gains. If you sell a stock for a profit and buy it right back, you still owe taxes on the gain. 30-Day LimitThe time limit for a sale and stock repurchase to not be a wash sale is 30 days before and after the date you sold your shares for a loss. If you own 100 shares of stock, buy 100 more and 10 days later sell the first 100 shares for a loss, the loss will be disallowed. Buying back a "substantially identical" investment within the 30 days triggers the wash sale rule. For example, if you sell stock shares and buy a stock option on the same company, it would trigger a wash sale and invalidate any tax loss from the sale of the shares.When the Rule Does Not ApplyThe shares purchased within 30 days before or after the sale for a loss must be replacement shares for the wash sale rule to be effective. You can buy shares and a week later sell them for a tax-deductible loss. This is because the initial purchase was not to replace shares already owned. In most cases, a wash sale is triggered when you sell an investment and then buy the same investment again within 30 days after the sale.Wash Sale No-No'sYou cannot try to get around the wash sale rule by buying back the shares in a different account, such as selling shares out of your regular brokerage account to book the loss and then buying the shares in your IRA account. Don't try to bend the rules by selling shares out of your individual brokerage account and buying them in a joint account. These transactions still would be classified as wash sales and the tax loss not allowed. REFERENCE SOURCE:http://finance.zacks.com/30-day-rule-buying-selling-stock-2065.html Let me know if you require further assistance with this matter.