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Is this a wash sale?

Personal Finance & Money Asked by stockjunky on July 21, 2021

I bought 100 shares of XYZ(January 2017) at $1. The stock then dropped to .50c over the next 12 months. I decided to average down and buy 50 more shares a year later on (January 2018) at .50c, totaling 150 shares. The stock price then moved up in March 2018 to .70c. I decided to reduce my holding to 100 shares, so I sold 50 shares at .70c.

Is that a wash sale?

2 Answers

First in, first out (FIFO) is the default (oldest shares are sold first).

Last in, first out (LIFO) is the opposite. You sell your newest shares first.

If you use any method other than FIFO, you must tell your broker which shares you want sold. According to IRS Publication 550, the burden is on you to prove that you instructed your broker which shares to sell and that your broker followed your requests. If you can't prove that, you're treated as having sold your oldest shares first (FIFO).

If the shares purchased in January of 2018 were bought more than 30 days before the March sale then there is no wash sale. If that's the case then you could have designated that shares from the first purchase were sold (a loss) or shares from the second purchase were sold (a gain).

Answered by Bob Baerker on July 21, 2021

No because the trades are more than 30 days apart. If the spring sell trade were within 30 days of the winter buy trade, it would be a wash sale.

From Wikipedia:

Under Section 1091, a wash sale occurs when a taxpayer sells or trades stock or securities at a loss, and within 30 days before or after the sale:

Buys substantially identical stock or securities, Acquires substantially identical stock or securities in a fully taxable trade, Acquires a contract or option to buy substantially identical stock or securities, or Acquires substantially identical stock for an individual retirement account (IRA). The "substantially identical stock" acquired in any of these ways is called the "replacement stock" for that original position.

The above is not tax advice, please consult your tax professional for advice if trading.

Answered by Charles Fox on July 21, 2021

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