So according to wash sales rules, it is possible for a trader....?

Question

to have made an income of $1M when in fact he really lost $800K and will ultimately wind up owing taxes on all $1M?

That can't be true?

Answer 1

Based on previous posts, you are not a day trader.

If you were a trader, the next question would be whether or not you had made the mark-to-market election. No election, then gains get reported and wash sale losses are postponed until the loss is actually reportable on your taxes.

Any sane investor would know their position and "harvest" those losses before 12/31 by selling some or all of the stock. (By definition, a day trader doesn't keep inventory.)

Answer 2

sure ... it is possible

all he needs is to have 1.8 million of losses disallowed by the wash sale rules.

of course, he'll recognize the 1.8 million in losses the next year -- but that's cold comfort

***
you're a trader as a business [and thus avoid the rule] in the eyes of the IRS only if you filed the appropriate form to request that status. And they aren't recently generous about allowing you to convert from a different status for a continuing activity. [ouch]

Answer 3

Traders aren't subject to the wash sale rules. You have to be a true trader for that to be the case and the IRS has a definition for trader. It includes devoting the majority of your work time, etc.