A Wash sale question?

Question

(1) On Apr. 1st, Bought XYZ for $10000
(2) On Apr. 2nd Sold it for $8000
(3) On Apr. 20th Bought XYZ for $5000
(4) On Apr. 21st Sold it for $4000

The first trade is a Wash Sale (step 1 and 2) because within 30 days, there is a Buy on Apr. 20th. The second trade is also a Wash sale (step 3 and 4) because in its previous 30 days, there was a Buy on Apr. 1st. There is no other transactions related to XYZ in this year. When to claim the loss?

Thanks in advance!

Answer 1

"You don't have a wash sale unless the shares you bought 'replace' the shares you sold." So sayeth the tax lawyer.

When you bought the shares in step 3 you were replacing the shares you sold in step 2. The makes step 2 a wash sale.

When you bought the shares in step 1, there is no way that could be considered replacing the shares you sold in step 4 so step 4 was not a wash sale.

You claim the $3,000 loss for the year it occurred.

For more information of this specific issue, see

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

For a more complete discussion of the issues associated with was sales, see

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

Answer 2

Step one and three create a wash sale and step four ends it. You would report a $6,000 loss for the year.

Answer 3

I think waggy meant a $3000 loss for the year, which would be correct.