Wash Sale Rules

Gregory J. Cook, EA, CPA+
Accredited Tax Advisor
Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants

When you sell a stock at a loss and repurchase a substantially identical stock within 30 days, your transaction will likely be designated a wash sale. A taxpayer cannot deduct losses incurred from wash sales, however, gains from such sales are taxable.

A wash sale results when a taxpayer sells stock or securities at a loss and within 30 days before or after the sale, buys, in a fully taxable trade, substantially identical stock or securities. This rule also applies if you sell the stock and your spouse, or a corporation you control, buys the substantially identical stock. Under the wash sale rules, the term “stock or securities” includes contracts or options to acquire or sell stocks or securities.

One of the requirements of a wash sale is that the stock or securities purchased must be substantially identical to the stock or securities sold. Generally, stock or securities of one corporation are not considered substantially identical to stock or securities of another corporation. They may, however, be considered substantially identical in a reorganization where the stock and securities of the predecessor and successor corporations are substantially identical. Generally, preferred stock of a corporation is not considered substantially identical to the common stock of the same corporation, unless the preferred stock is convertible.

Where the wash sale rules apply, adjustments are made to the holding period and the basis of the property acquired in the transaction that triggered the rule. Generally, the holding period of the security disposed of is tacked onto that of the replacement security. Where a security or share of stock is bought, and such purchase triggers the wash sale rule, the basis of the property acquired (new property) is the acquisition price plus the loss disallowed on the substantially identical securities.

If the number of shares of substantially identical stock or securities you bought within the 30 day period is less than the number of shares of stock or securities you sold, you must determine the particular shares of stock or securities to which the wash sale rules apply. This is done by matching the shares of stock or other securities sold with an equal number of the identical shares or securities bought. The shares should be matched in the same order in which they were acquired. The matched shares and securities are subject to the wash sale rules.

Please note however, that you should consult your Cook & Co. advisor before performing such a transaction.

News and Articles from Bara Business Center

Greg Cook

Greg Cook on the Recovery Act ...

The Recovery Act was passed by Congress and signed into law by President Obama on February 17, 2009. The purpose of the $787 billion Recovery package is to jump-start the economy to create and save jobs. The Act specifies appropriations for a wide range of federal programs, and increases or extends certain benefits under Medicaid, unemployment compensation, and nutrition assistance programs. The legislation also reduces individual and corporate income tax collections (to an extent), and makes a variety of other changes to tax laws.

dollars

This Act will have far reaching consequences and we will be dealing with it for years to come (at least until 2018). Twenty-eight different agencies – such as the Departments of Education; Health and Human Services; and Energy – have been allocated a portion of the $787 billion in Recovery funds. Each agency develops specific plans for how it will spend its Recovery Act funds. The agencies then award grants and contracts to state governments or, in some cases, directly to schools, hospitals, contractors, or other organizations. The agencies are required to file weekly financial reports on how they are spending the money and their specific activities related to Recovery funds.

Read more about The Recovery Act

While Our Government Rolls the Dice with Deficit Spending ...

We endeavor to bring information to you that will help you keep taxes and your personal finances in check.

Quicken Articles

Have You Refinanced Your Home?
If you are one of thousands who locked into a lower home mortgage interest rate, then you've hit the savings jackpot! Besides getting one of the lowest rates in decades, you may be able to deduct some of the refinancing costs when you file your tax return. The “points” paid to get a home mortgage may be deductible as mortgage interest when you itemize on Form 1040's Schedule A. Points paid to get an original home mortgage may be fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

For a refinanced mortgage, you figure the interest deduction by dividing the points paid by the number of payments you will make over the life of the loan. You may deduct points only for those payments made in the tax year. Say you paid $2,000 in points and you will make 360 payments on a 30-year mortgage. You could deduct $5.56 per monthly payment, or a total of $66.72 if you made 12 payments in one year. If you used part of the refinanced mortgage money to finance improvements to your home and if you meet certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid.

Also, if you are refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off. Other closing costs – such as appraisal fees and other non-interest fees – generally are not deductible. And the amount of your adjusted gross income could affect the amount of deductions you can take. Any way you look at it, between the lower interest rates and the tax savings, that's money you can take to the bank. For more information on deductions related to refinancing, contact your Cook and Co. Advisor.