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Linn Energy, LLC Message Board

  • ronharv ronharv Dec 28, 2013 3:36 PM Flag

    Wash Sales

    For those who may not know, if you take a loss on shares of XYZ, you can't delare it on your taxes should you buy back XYZ (or any shares that are fundamentally similar) within a 30 day period on either side of your sale. But you can increase the cost basis of your buyback by the amount of your loss. That way you're not snookering the IRS for a tax loss, but they're not taking you for a ride either. But make sure that you use a brokerage (or maybe TurboTax?) that figures it out for you. Otherwise, if you trade a fair amount, your eyes will become spirals.

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    • Are you saying that if one sold LINE for a tax loss and bought LINCO at the same time , it would be considered as a wash sales?

    • why work yourself up into a frenzy over something that may never happen

    • Example: Some time ago you bought 80 shares of XYZ at $50. The stock has declined to $30, and you sell it to take the loss deduction. But then you see some good news on XYZ and buy it back for $32, less than 31 days after the sale.

      You can't deduct your loss of $20 per share. But you add $20 per share to the basis of your replacement shares. Those shares have a basis of $52 per share: the $32 you paid, plus the $20 wash sale adjustment. In other words, you're treated as if you bought the shares for $52. If you end up selling them for $55, you'll only report $3 per share of gain. And if you sell them for $32 (the same price you paid to buy them), you'll report a loss of $20 per share.

    • From being dead wrong to being an expert in wash sales in 1 post. Great job!

      • 1 Reply to ghondula
      • I'm not sure yet about being "dead wrong" re the LNCO/LINE situation. On the one hand they're highly similar for reasons we're all (almost) aware of. On the other hand, there's a world of difference between paying 1099 taxes and how the horror of K-1s work. Also, the prices of the two swing about in relation to each other, sometimes by a lot. (Whether this matters much I don't know.) Furthermore, one's a passive partnership and the other is a common stock.

        And it's not like a brokerage sends its opinion to the IRS, unless the taxpayer uses their yearend trade-summary forms. I'd really be interested to know how the tax departments of other brokerages are calling it. I'd guess that they're playing it safe in a gray area and going for wash sale. That doesn't mean a taxpayer couldn't ignore it and write a short explanation about why it shouldn't be a wash sale if the brokerage's yearend trade info. is being used. And for someone manually doing their Schedule Ds, well, I bet that the IRS pays no attention.

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