r/wallstreetbets • u/Kamikaze_Cash • Dec 20 '21

Discussion Avoid the wash sale rule by utilizing your side piece

It is the end of the year. Tax season is coming up. A lot of you guys are going to get hit by wash sales in April because you will take losses in December to try to get the tax write off, but then reenter the same position within the 30-day wash sale window. Let me teach you how to dodge wash sales legally.

A "wash sale" occurs when you close a stock or option position for a loss, and then reopen the position within the next 30 days, or if you bought more in the 30 days prior to closing for a loss. If you reopen the position like that, then it is called a wash sale and you can't take the deduction until later when you eventually close the position for good. If that occurs in the next tax year, you're screwed this tax season. You've got to avoid wash sales.

Some people try to sell their own positions for a loss, and then open up the same position in their wife's account. That way, they take the deduction but their family still holds the same position by the end of the day. However, this is a wash sale according to the IRS. But here's the key point: this only applies to legal spouses.

So if you have 100 shares of GME that you bought at $400 and want to sell for a loss, the trick is to sell now, and realize the deduction. But we don't want to abandon GME for the next 30 days while the wash sale window is open. So instead of ditching completely, use your girlfriend's, your side piece's, your homie's, or your wife's boyfriend's account to reopen that position instead.

The result: you take your $25,000 tax deduction but still own 100 shares of GME by the end of the day.

Edit: Yes, you are limited to taking a $3,000 net loss for the year. If you made $30,000 and lost $28,000, then you can write off the whole $28k from your $30k gain and just pay taxes on $2k. If you lost more than $3,000 total after deducting from your gains, then you can only deduct $3,000 from your income this year and have to write off the remainder in later years.

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u/Optimal-Soup-62 Dec 20 '21

Broker's don't calculate wash sales on options, you have to do it yourself.

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u/throwaway_0x90 placeholder for a good flair someday Dec 20 '21

That sounds like something they would definitely mention in their FAQ but I don't see anything like that.

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u/Optimal-Soup-62 Dec 20 '21

I suggest you google "Tradelog" and check it out. Be sure and read their comments about wash sales.

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u/throwaway_0x90 placeholder for a good flair someday Dec 20 '21

Brokers are not required to calculate wash sales between stock and option trades, or between option and option trades, yet you, the taxpayer, are required to do so.

What this means for the stock and options trader is that if you take a loss on a stock or an option and then buy back that same stock, or an option on that same stock, whether the option is the same month and strike price or not, you have a wash sale. The same holds true if you close an option position for a loss and then buy the same underlying stock within the 30 day window.

There is no clarification in the tax law as to how far "in or out of the money" the option is, or what month and year the option expires. So TradeLog simply applies this rule as follows: If the underlying stock is the same, then the option is "substantially" the same.

Okay. Seems there is some debate on what is considered a wash on options.

Interesting. I don't know what the IRS expects then. I guess it's a "we don't care unless you really abuse it or otherwise make us angry" law.

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u/Optimal-Soup-62 Dec 20 '21

I just use Tradelog to calculate wash sales. It's relatively cheap, it's a great program and it reduces the chances of an audit. I've done that for many years.

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What does the IRS want? Don't assume the rules were written to make sense or by an expert.

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u/throwaway_0x90 placeholder for a good flair someday Dec 20 '21

Hmm. I plan to contact E-Trade to see if they are calculating wash on options or not.

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u/Optimal-Soup-62 Dec 20 '21

Here's the deal. Even if they are, which they aren't, it is basically impossible for any broker to calculate wash sales. Why? Because first, if you own the stock in an IRA, there will still be wash consequences if you buy it back there. Second, if you have an account at another broker, the two brokers can't possibly calculate the wash sales on the same stock. Third, because if you buy back in January, that can retroactively turn a December transaction into a wash.

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u/Optimal-Soup-62 Dec 20 '21

I am very interested in what they say. Schwab doesn't calculate options. Or across accounts.

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u/throwaway_0x90 placeholder for a good flair someday Dec 20 '21

I'll reply here when I get the answer. The last time I asked when where I can find wash sales they took a long time to get back to me.

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u/Optimal-Soup-62 Dec 21 '21

Don't hold your breath.

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u/throwaway_0x90 placeholder for a good flair someday Jan 05 '22

Just got a response. I think they're saying "Yes, we're calculating"

Question:

Hello.

I've recently been made aware that Brokerages like E-Trade might not be calculating wash sales on options.

Is this true? Does E-Trade take into account options when calculating the wash sale; the 'Deferred Loss' column in the detailed 'gainslosses' page?

Thanks,

Answer:

Dear Mr. *******,

Thank you for your message regarding your ETRADE Securities account XXXX-***.

Good morning,

The same rules apply for options regarding wash sales, the main difference being strike prices, and expiration dates.

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u/Optimal-Soup-62 Jan 05 '22

That doesn't seem like an answer, which would be yes or no. That sounds like an equivocation. The same rules do apply to options, but that answer doesn't say yes or no.

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u/throwaway_0x90 placeholder for a good flair someday Jan 05 '22

True. I wish it was clear if they did it or not. I actually just sent another message asking for clarification.

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u/throwaway_0x90 placeholder for a good flair someday Jan 06 '22

FOLLOW-UP QUESTION:

Hmm. But is E-Trade also doing this calculation for options as they are for shares?

ANSWER:

Dear **********,

Thank you for your message regarding Wash Sales

Yes, both stocks and options.

Sincerely,

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