Q: Can I just add the total disallowed wash sale amount to the total cost basis?
A: Based on the following information, the answer is no. SEE BELOW:
How do wash sales work?
A wash sale will trigger several consequences. First, if you violate the wash sale rule you can't claim your loss. Instead, your loss will be added to the cost basis of the replacement purchase. When you sell the replacement stock, you can recognize the previously disallowed loss. Your holding period for the replacement stock includes the holding period of the stock you sold.
Here's a quick example of a wash sale.
On 9/30/XX, you buy 500 shares of ABC at $10 per share. One year later the stock price starts to drop, and you sell all your shares at $9 per share on 10/4/XY. Two days later, on 10/6, ABC bottoms out at $8 and you buy 500 shares again. This series of trades triggers a wash sale.
The holding period of the original shares will be added to the holding period of the replacement shares, effectively leaving you with a long-term position. Additionally, the cost basis on your 10/6 purchase will be adjusted to $4,500, reflecting the cost of acquisition ($4,000) plus the $500 disallowed loss from your 10/4 sale.
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