Stock buy/sell timing question- Capital Gains Rate

Stock buy/sell timing question- Capital Gains Rate

by Bill
(Davis, Ca, USA)

I own 1000 shares of stock A, bought 5/25/2008. On 5/20/2009, I sell those shares for a substantial gain.

Realizing that if I had waited 5 more days I could have been taxed at more favorable long term cap gains rate, I slap myself on the side of my head.

But, since stock buys and sells for 5/20/2009 settle on the same day, can I (after the sell) buy 1000 shares of A and use this buy as the basis for the sell? And due to wash sale considerations, assume that the buy price is less than the sell price. That way, I can wait and sell on or after 5/25/2009 and realize the long term gain tax advantage.

Thanks.

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Stock buy/sell timing question- Capital Gains Rate

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Capital Gains Timing Answer from Green
by: Robert A. Green, CPA

Good answer and thanks for the link. If you buy and sell 100 shares of the same security and have a net capital gain, end of story, that is your reportable capital gain. You can't reduce the capital gain with the purchase of an additional 50 shares, bought soon thereafter.

Conversely, if you have a net loss instead of a net gain on those 100 shares, you have a wash sale loss deferral in connection with only the 50 shares you bought back within 30 days. The loss on 50 of the 100 shares is added to the basis of the new 50 shares purchased - the loss can is kicked down the road. The IRS doesn't want people to book losses at year end for tax breaks and immediately buy back positions and take a tax loss that is not really an economic loss.

With futures its a different story, since Section 1256 contracts are marked to market (MTM) at year end anyway, so there is no chance for deferral. Securities traders with Section 475 MTM also inpute sales at year end and therefore are exempt from onerous wash sale rules.

Don't try to figure out wash sales on your own and your broker offers insufficient help too. Plus, you need to consider wash sales between taxable and IRA accounts too. We recommend TradeLog, and learn more about the program and get it here TradeLog

You can learn more about all these topics and strategies in Green's 2010 Trader Tax Guide available for download here. Thanks.

Take care,
Robert A. Green, CPA
CEO Green & Company CPAs LLC (GreenTraderTax.com)
888-558-5257 (toll-free in US only), or 646-224-6923 (worldwide); 212-658-9502 fax
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Capital Gains Timing...
by: Larry

Hi Bill,

Thanks for submitting your question.

You had to ask a Tax question (just kidding). Seriously though, I'll answer as best I can but I recommend to ask a licensed CPA any time Tax questions come up to be sure.

That said- as I understand your question(s), you buy stock on 05/25/2008, sell those shares on 05/20/2009 for a gain, and buy the same number of shares of the same stock back the same day, 05/20/2009 and are wondering if you can use the second purchase price for your cost basis.

First of all, I believe "Wash Sale" rules are designed only to not allow you to deduct losses from a stock if you buy it back within 30 days of selling (at least not on the first round trip transaction). Since you are selling at a gain, the entry for the first sale/transaction will probably need to be kept as it was.

When you have a loss with a "wash sale", the loss is taken into consideration when you purchase the shares again within 30 days, when figuring out the new cost basis. Again though, you had a gain so this would not come into play I don't believe.

Sorry, but I don't think there is a way around the short term capital gains tax in this case. Be sure to check with a CPA as I mentioned. Here is a website that caters to traders: Green Trader Tax

Good Luck!

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