Could someone kindly let me know if this is considered a wash sale?

Question

I am new to the wash sale rule and was hoping an expert could give me some advice as to whether or not this is considered a violation of the "wash sale" rule?

Scenario:

I originally own 600 shares of XYZ at $46 back around May. The value of XYZ has fallen to $32 (July 14) and I decided to purchase another 800 shares of XYZ at $33 on July 15 in hopes that it will bounce back and I could make some money off the opportunity while continuing to hold the original 600 until I can recover the original amount. Thankfully XYZ did bounce back this week and selling at $40. I sold the 800 shares I bought just two days ago at $40, thinking I have a capital gain of $7/shareand am looking to continue to hold the original 600 until it hopefully hits $46+ again. I am new to wash sales and not sure if what I did is considered a wash sale. Could someone please let me know if this is a wash sale? Also the 800 shares I sold, was it the 800 I bought or the original 600+200 purchased recently?

Answer 1

If you did not identify the shares you sold then

(1) you sold the 600 shares your purchased at $46 plus 200 of the shares you purchased at $33, and

(2) the wash sale rule applies and you must apply the loss on from the first 600 shares to your cost basis for the 600 shares you still own.

If you did properly identify the 800 shares you sold as the 800 shares you purchased at $33 there is no wash sale and the 600 shares you still own are the 600 shares you purchased at $46.

There is an excellent online guide to capital gains at

http://www.fairmark.com/capgain/index.ht...

which includes a page on "Identifying the Shares You Sell" at

http://www.fairmark.com/capgain/ident.ht...

and an entire section on the wash sale rule.

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As a side note, other than the hassle of keeping records, there is a definate advantage to having the wash sale.

If you did not identify the shares you sold, you have a taxable short-term capital gain of ($40 - $33) x 200 = $1,400.

If you did identify the shares you sold as the 800 shares purchased at $33, you have a taxable short-term capital gain of ($40 - $33) x 800 = $5,600.

By NOT identifying the shares you sold you postpone the taxes due on $4,200. That is normally a good thing.

Answer 2

First of all, you didn't hold the second lot long enough for the gain to be considered a "capital gain." It's going to count as "income" because the time period was so short.

As far as the "wash sale" question is concerned: Quite simply, if you buy a security, then sell it at a lower price, booking a "loss," then buy it BACK within thirty days, THAT is what is considered a "wash," because it appears you only made the sale to book the loss and to get the tax write-off. Nothing you did sounds like it comes anywhere near a "wash" sale.