r2i forum

Jaggudada;90847Desi,

Let's say you buy and sell as follow

1/1/2007 - Buy 100 Sh of ABC $10(b1)
2/1/2007 - Buy 200 Sh Of ABC $20(b2)
3/1/2007 - Buy 300 Sh of ABC $30(b3)

1/15/2007 - Sell 50 Sh of ABC
2/15/2007 - Sell 100 Sh of ABC
3/15/2007- Sell 100 Sh of ABC
4/15/2007 - Sell 300 Sh of ABC
5/15/2007 - Sell 50 Sh of ABC

So you will create separate entry for each sell( 5 entries) and for date acquired and cost basis, you can write "various" and figure cost basis by averaging the buys, in this case (1000+4000+9000)/600= $23.33 X no of shares sold.

or should report strictly based on FIFO? Which means first 50 shares sold will come out of b1 , next 100 shares sold will come out of remaining b1 and partly from b2 , so on and so forth.

This is simple example as all the transactions are short term, what happens when some of them are long term capital gain or loss?
Is this how one should report it?[/quote]

JD,

I use first in first out in excel spreadsheet and then convert to a txf file and upload to turbotax.

However, some brokerages have what they call gainskeeper or other similar software which will also do something similar, which I have not explored.

Average cost method is used for mutual funds but not for stocks. For MFs also, I use FIFO.

For stocks, IRS allows two methods, one is specific purchase identification. i.e. when you sell a stock, you can tell the broker and specify that you want to sell stocks from the last purchase or first purchase etc, i.e. specify the lot. I have never done that. I treat all shares as commingled and use the FIFO method.

So besides the specific lot identification, the other approach IRS allows is FIFO.

They do not allow average price computations for stock.

Now to the practical part

I can actual show an example if you want how I would do the above in excel spreadsheet.

If the entire transaction of purchases and sales is closed out in a single year with no succeding purchase or remaining shares, then I do not move the cost basis of wash sale to next purchase as the entire transaction is closed and it makes zero difference as total cost remains same. However if there are shares remaining into next year or another trade is engaged in within 30 day period of the last sale, then I am more careful to apply the wash sale rule as it will make a difference if not applied and IRS requires wash sale application.

Whether long term or short term, the FIFO takes care of it. Sometimes a single sale may have to be broken and shown as two sales because part of it is shares that were long term and other part short term.

Hope this helps.

Jaggudada;91150If you keep buying and selling same security/stock within 30 days and using FIFO method for tax reporting purposes and some sell transactions have loss, followed by gain on some sell transactions, will that be considered as wash sale? The intent here is not to take loss and then turn around and buy the same security with the hope that it's going to go up, instead carry out short term buy/sell transactions.[/quote]

Look at how to calculate basis for wash sale (link below). Desi is saying , if you buy & sell your securities in the same year, he doesn't bother calculating the basis since the tax liability remains the same.

http://www.fairmark.com/capgain/wash/ws101.htm

Excerpt:
Because of this basis adjustment, a wash sale usually isn't a disaster. In most cases, it simply means you'll get the same tax benefit at a later time. If you receive the benefit later in the same year, the wash sale may have no effect at all on your taxes.

There are times, though, when the wash sale rule can have truly painful consequences.

If you don't sell the replacement stock in the same year, your loss will be postponed, possibly to a year when the deduction is of far less value.

If you die before selling the replacement stock, neither you nor your heirs will benefit from the basis adjustment.

You can also lose the benefit of the deduction permanently if you sell stock and arrange to have a related person ? or your IRA ? buy replacement stock.

As explained in my book, Consider Your Options, a wash sale involving shares of stock acquired through an incentive stock option can be a planning disaster.

Jaggudada;91150If you keep buying and selling same security/stock within 30 days and using FIFO method for tax reporting purposes and some sell transactions have loss, followed by gain on some sell transactions, will that be considered as wash sale? The intent here is not to take loss and then turn around and buy the same security with the hope that it's going to go up, instead carry out short term buy/sell transactions.[/quote]


JD,

When you sell something for a gain, you have to report the gain. There is no wash sale there.

If you sell something for a loss, as long as within 30 days prior and within 30 days after this sale, you have not bought identical shares, you can take the loss.

Let us examine the following:

[LIST=1]

4/1/2007 - bought 100 shares of ABC for $6000

4/10/2007 - sold 100 shares of ABC for $4000

4/22/2007 - bought 100 shares of ABC for $3000[/LIST]List items 1 and 2 create a loss of $2000, but since within 30 days around 4/22/2007, you repurchased the shares, the $2000 loss cannot be claimed in this sale. You still need to report the sale in Schedule D, but claim no loss and instead mark it as a "Wash Sale".

Now, since you had a $2000 loss that you were unable to claim in that transaction of list items 1 and 2 above, that loss moves into the cost basis of list item #3 above.

This means even though on 4/22/2007, you bought 100 shares of ABC for $3000, your cost basis for those is no longer $3000, but rather it is $5000.

Desi;91302JD,


[LIST=1]

4/1/2007 - bought 100 shares of ABC for $6000

4/10/2007 - sold 100 shares of ABC for $4000

4/22/2007 - bought 100 shares of ABC for $3000[/LIST]

04/30/2007 - Sold 100 Shares of ABC for $2000

Jaggudada;91403In above example, no matter whether you call first sale as a wash sale or not, wouldn't your loss be $3000, no matter which way you figure? [/quote]

Yes.

[QUOTE]
In your example, it will be considered as a wash sale since you would have otherwise taken a loss of $2000 and repurchased the same security and who knows in future it might appreciate giving you an advantage of taking early tax deduction.