q_lurker, Need Wash Sale Help

Leon Pink

q_lurker, you appear to be the guru for Wash Sales. I am having an issue reconciling with my Brokerage firm. Hopefully you can provide guidance on inputting adjusting these transactions to balance with what the brokerage firm is showing.

My trades:
5/04/2021 - purchased 290 shares of XYZ @ $37.04
5/05/2021 - purchased 1018 shares of XYZ @ $36.24
5/12/2021 - purchased 492 shares of XYZ @ $35.3582
5/12/2021 - Sold 492 shares of XYZ @ $35.4201

Brokerage Firm (Realized Gain/Loss) Reporting:
5/12/2021 - Sell - FIFO 290 shares - Adj Cost $10,271.74 - Adj Loss <469.86>
5/12/2021 - Sell - FIFO 202 shares - Adj Cost $ 7,154.80 - Adj Loss <165.68>
5/12/2021 - Wash Sale Adj - 290 Shares - Adj Cost <$469.86> - Adj Gain $469.86
5/12/2021 - Wash Sale Adj - 202 Shares - Adj Cost <$165.86> - Adj Gain $165.86

Brokerage Holdings (Unrealized Gain/Loss):
5/05/2021 - purchased - 816 shares of XYZ @ 36.8158 - Adj Cost $30,041.70 - Wash Sale Adj $469.86
5/12/2021 - purchased - 492 Shares of XYZ @ 35.6949 - Adj Cost $17,561.91 - Wash Sale Adj $165.68.

Hopefully you can provide assistance with all the information I provide.

Thanking you in advance,
Leon

Sherlock

Here is one way you may enter the transactions:

5/04/2021 Bought 290 shares of XYZ @ $37.04
5/05/2021 Bought 1018 shares of XYZ @ $36.24
5/12/2021 Bought 492 shares of XYZ @  $35.3582
5/12/2021 Removed 1800 shares of XYZ 
5/12/2021 Added 290 shares of XYZ on 5/04/2021 @ $35.4201
5/12/2021 Added 202 shares of XYZ on 5/05/2021 @ $35.4201
5/12/2021 Sold 492 shares of XYZ @ $35.4201
5/12/2021 Added 816 shares of XYZ on 5/05/2021 @$36.8158
5/12/2021 Added 492 shares of XYZ on 5/12/2021 @$35.6949

Note:  The prices are estimates - use the total cost and total sale when entering the transactions.
The sum of total cost of the Added 290 and 202 transactions should match the total sale of the 492 shares.
The total cost of the Added 816 transaction should be $30,041.70
The total cost of the Added 492 transaction should be $17,561.91

q_lurker

q_lurker, you appear to be the guru for Wash Sales. 

That might be a heavier mantle than I deserve.

First, I would agree with @Rocket J Squirrel that if you can direct the broker that the sale on 5/12 was of the shares bought on 5/12, then there is no loss, and thus no wash sales rules apply.  (Best option for you, IMO.)

You indicated the following:

		shares	$/sh	Cost	Proceeds
5/4/2021	Bought	290	37.04	10,741.60
5/5/2021	Bought	1018	36.24	36,892.32
5/12/2021	Bought	492	35.3582	17,396.23
5/12/2021	Sold	492	35.4201		17,426.69
Per brokerage					Proceeds	Basis	Loss
5/12/2021	Sold	290	35.419793		10,271.74	10,741.60	(469.86)
5/12/2021	Sold	202	35.419802		7,154.80	7,320.48	(165.68)
					17,426.54		(635.54)
	(Not sure why this total is $0.15 different than the total sale value your cost suggests.)

 
The applicable wash sale rules as I understand them

• Taking a loss on those sold shares is not allowed.
• The disallowed loss can be added to the shares acquired during the +/- 30-day window around that sale.

I think I would be looking at a series of transactions on 5/12/21
1)  The true purchase transaction

• 5/12/21 Bought 492 shares @ 35.3582 for a total of 17,396.23

2) Adjust the cost basis for the shares being sold, so there is no capital loss.

• 5/12/21 Remove Shares 492 (all of lot bought 5/4/21; part of lot bought 5/5/21)
• 5/12/21 Add Shares 492 Cost (basis) = 17,426.69; Date Acquired = 5/4/21
• --- could also add shares as two lots acquired on different , but I don't think that is necessary since you are immediately turning around and selling them again.

3)  The true sale transaction

• 5/12/21 Sold Shares 492 Proceeds = 17,426.69; specify lot as date acquired 5/4/21 = the prior Add
• --- This true sale should now produce a $0 capital gain/loss

Your two lots now should be
a) Acquired 5/5/21 -- 816 shares Cost basis = 29,571.84
b) Acquired 5/12/21 - 492 shares Cost basis = 17,396.23
(For some reason these two costs seem different from what your brokerage appears to provide)
Both of those lots were acquired less than 30 days before sale at a loss, so their aggregate cost basis gets increased by the loss that was disallowed.

4)  Adjust the cost basis of those two lots upward.  The total disallowed loss was $635.54.  I would allocate that to the two lots in proportion to their actual shares (816 and 492).  That becomes:

To the 5/5/21 lot, add $396.48 bringing the total new (adjusted) basis to $29,968.32
To the 5/12/21 lot, add $239.06 bringing the total new (adjusted) basis to $17,635.29
--- again, these are slightly different than your brokerage seems to develop  

• Remove Shares 1,308 (both existing lots)
• Add Shares 816 with Cost = 29,968.32 and Acquisition date = 5/5/21
• Add Shares 492 with Cost = 17,635.29 and Acquisition date = 5/12/21

If the Removes, Adds, and Sales are entered in that order on the same date, I think Quicken will keep all the lots straight, but check thoroughly as you reach the finish point.  If you choose to match your broker's numbers better, I think you can substitute their numbers where I have calculated numbers on the Add Shares transactions.

To broadly summarize, you are decreasing the cost basis of the shares actually sold, and increasing the cost basis of the shares acquired during the 61-day window around that sale by that same amount.  The true Buys and Sales remain as is so that the cash in the account remains in balance.

Hope this helps, and is close to 'right'.      

Boatnmaniac

Linking in @q_lurker .  (The @ symbol in front of the Community name will cause a notification to be sent to that person.)

Leon Pink

Thanks @Boatnmaniac. I appreciate your extra effort to assist. Correction will be made in the future.

Tom Young

This is really a "tax" question, not a "Quicken accounting" question, so the better place to ask this question is over in the TurboTax forum - ttlc.intuit.com

This kind of question pops up frequently over there so there's several people who are knowledgeable.

Actually this is exactly the kind of question you should be asking your broker.  They should be able lay out exactly how they've calculated your ending lots' basis.

Rocket J Squirrel

I would ask the broker to treat the sale as LIFO, realizing a small gain and avoiding the wash issue altogether.

Leon Pink

Thanks your both for your answers. Yes, LIFO would have been the appropriate course of action. Unfortunately, I thought I identified the trades as such, but didn't verify the following day when I could have made the adjustment.

My brokerage firm does not give tax advise and only provides what I showed above. It is then populated into the 1099 Form, which is filed with the IRS.

Regarding Turbo Tax, it will automatically pick up the trades as Wash Sales, but the issue is to properly record the transactions within Quicken so they are in balance with my brokerage firm. Left undone, this will cause inaccurate reporting when I eventually close the positions.

And here's another reason, every year my Accountant and I have a lunch bet as to who can find a more meaningful difference. Over the past 15 years, we are 8 & 7. I won this year.

Hopefully, @q_lurker will see these posts and can provide his input.

Thanks again.

Sherlock

Here is one way you may enter the transactions:

5/04/2021 Bought 290 shares of XYZ @ $37.04
5/05/2021 Bought 1018 shares of XYZ @ $36.24
5/12/2021 Bought 492 shares of XYZ @  $35.3582
5/12/2021 Removed 1800 shares of XYZ 
5/12/2021 Added 290 shares of XYZ on 5/04/2021 @ $35.4201
5/12/2021 Added 202 shares of XYZ on 5/05/2021 @ $35.4201
5/12/2021 Sold 492 shares of XYZ @ $35.4201
5/12/2021 Added 816 shares of XYZ on 5/05/2021 @$36.8158
5/12/2021 Added 492 shares of XYZ on 5/12/2021 @$35.6949

Note:  The prices are estimates - use the total cost and total sale when entering the transactions.
The sum of total cost of the Added 290 and 202 transactions should match the total sale of the 492 shares.
The total cost of the Added 816 transaction should be $30,041.70
The total cost of the Added 492 transaction should be $17,561.91

Mark1104

before providing another approach, can you please confirm you repurchased at least 492 shares of the same security sometime between May 12 and June 6? 

Leon Pink

Both the buy and sale trades took place on May 12th.

Tom Young

I took your question to be "How did the broker come to these numbers?"  If you don't know that, then that's a legitimate "information" question your broker should be able to answer easily.  That's not "tax advice."

Mark1104

@Leon Pink   - I withdraw my question.  I was having trouble seeing where the wash sale occurred, but I guess you sold the 492 first and THEN repurchased the same 492 shares later on the same day - that would be a wash sale 

here is how I would do this in Quicken - kludgy but it should work

adjust the purchase on 5/5 by $635.34, which is the amount of the wash sale

then,  delete the broker's SELL transaction of 492 shares on 4/12
then, on 5/12 post a transaction to sell 290 shares at $37.04 
then again on 5/12 post a transaction to sell 292 shares at $37.06 (this new price is simply adding the $635.34 to the cost basis of the 5/5 lot and dividing by 1018)

the lot from 5/4 should be gone with neither a profit or loss
the partial lot sale from 5/5 should also be neither a profit or loss, but there may be a small rounding error that you may have to deal with. 

cash available should be back to zero

does that work? kludgy for sure, but the remaining lot now has a cost basis that is higher by $635.34 which is the wash sale loss that was denied.  That should tie to the  broker's cost basis for the remaining 816 shares

Leon Pink

@Mark1104 - Actually the 5/12 trades were first purchased and then sold later the same day. Everything took place as presented on my side and the brokerage side as I presented at the top. Thus, I should process the corrected trades as posted at the brokerage firm, under the "Brokerage Firm (Realized Gain/Loss) Reporting." I think you might be on the right track and while I hope this doesn't happen, imagine 3-5 years from now I am being audited and trying to explain it. If we are having this much difficulty one can only wonder how an IRS Auditor will interpret.

Mark1104

you are worried about the IRS auditing your investment account records in Quicken?????  Absolutely will not happen.

the brokerage firm records are the 'system of record' as the firm is required to maintain cost basis correctly and report capital gains to the IRS.  if you stopped using quicken tomorrow, the IRS won't care.  They have the brokerage records to audit against. 

This is why I gave up trying to match my Quicken costs basis to my brokerage firm years ago.  It just doesn't matter.  Before 2011, yes, it matters, but since then, why bother???????

q_lurker

q_lurker, you appear to be the guru for Wash Sales. 

That might be a heavier mantle than I deserve.

First, I would agree with @Rocket J Squirrel that if you can direct the broker that the sale on 5/12 was of the shares bought on 5/12, then there is no loss, and thus no wash sales rules apply.  (Best option for you, IMO.)

You indicated the following:

		shares	$/sh	Cost	Proceeds
5/4/2021	Bought	290	37.04	10,741.60
5/5/2021	Bought	1018	36.24	36,892.32
5/12/2021	Bought	492	35.3582	17,396.23
5/12/2021	Sold	492	35.4201		17,426.69
Per brokerage					Proceeds	Basis	Loss
5/12/2021	Sold	290	35.419793		10,271.74	10,741.60	(469.86)
5/12/2021	Sold	202	35.419802		7,154.80	7,320.48	(165.68)
					17,426.54		(635.54)
	(Not sure why this total is $0.15 different than the total sale value your cost suggests.)

 
The applicable wash sale rules as I understand them

• Taking a loss on those sold shares is not allowed.
• The disallowed loss can be added to the shares acquired during the +/- 30-day window around that sale.

I think I would be looking at a series of transactions on 5/12/21
1)  The true purchase transaction

• 5/12/21 Bought 492 shares @ 35.3582 for a total of 17,396.23

2) Adjust the cost basis for the shares being sold, so there is no capital loss.

• 5/12/21 Remove Shares 492 (all of lot bought 5/4/21; part of lot bought 5/5/21)
• 5/12/21 Add Shares 492 Cost (basis) = 17,426.69; Date Acquired = 5/4/21
• --- could also add shares as two lots acquired on different , but I don't think that is necessary since you are immediately turning around and selling them again.

3)  The true sale transaction

• 5/12/21 Sold Shares 492 Proceeds = 17,426.69; specify lot as date acquired 5/4/21 = the prior Add
• --- This true sale should now produce a $0 capital gain/loss

Your two lots now should be
a) Acquired 5/5/21 -- 816 shares Cost basis = 29,571.84
b) Acquired 5/12/21 - 492 shares Cost basis = 17,396.23
(For some reason these two costs seem different from what your brokerage appears to provide)
Both of those lots were acquired less than 30 days before sale at a loss, so their aggregate cost basis gets increased by the loss that was disallowed.

4)  Adjust the cost basis of those two lots upward.  The total disallowed loss was $635.54.  I would allocate that to the two lots in proportion to their actual shares (816 and 492).  That becomes:

To the 5/5/21 lot, add $396.48 bringing the total new (adjusted) basis to $29,968.32
To the 5/12/21 lot, add $239.06 bringing the total new (adjusted) basis to $17,635.29
--- again, these are slightly different than your brokerage seems to develop  

• Remove Shares 1,308 (both existing lots)
• Add Shares 816 with Cost = 29,968.32 and Acquisition date = 5/5/21
• Add Shares 492 with Cost = 17,635.29 and Acquisition date = 5/12/21

If the Removes, Adds, and Sales are entered in that order on the same date, I think Quicken will keep all the lots straight, but check thoroughly as you reach the finish point.  If you choose to match your broker's numbers better, I think you can substitute their numbers where I have calculated numbers on the Add Shares transactions.

To broadly summarize, you are decreasing the cost basis of the shares actually sold, and increasing the cost basis of the shares acquired during the 61-day window around that sale by that same amount.  The true Buys and Sales remain as is so that the cash in the account remains in balance.

Hope this helps, and is close to 'right'.      

q_lurker

Leon Pink said:

... 

Regarding Turbo Tax, it will automatically pick up the trades as Wash Sales, but the issue is to properly record the transactions within Quicken so they are in balance with my brokerage firm. Left undone, this will cause inaccurate reporting when I eventually close the positions.

...

Hopefully, @q_lurker will see these posts and can provide his input.

Thanks again.

Re Turbotax -- I don't think TT will automatically pick up the wash sale.  It may come into them through a brokerage download -- that the sale on 5/12 was a wash sale.  The TT program itself cannot pick up the wash sale because you are not reporting the purchases to TT, only the sales.  At least that is the way I see things.  

Please take my input as FWIW.  I am not a tax pro, CPA, financial guru, enrolled agent, or otherwise qualified to talk taxes.  Make sure YOU understand everything you are doing here, just as you are recognizing why you are trying to have your Quicken records correspond with the brokerage data.  These wash sale situations are about as nerve-racking as I can manage within Quicken.  Take your time, be patient, ask questions.  

Mark1104

and for any trying to follow this thread, the reason why there would be no wash loss sale if the lot of 492 shares purchased on 5/12 had been identified as the lot sold, it's because there was a gain..... 

Leon Pink

@q_lurker - Thanks for thanking the time to respond. It looks like this should do it.

FYI, $0.15 difference was Regulatory Fees on the 492 share sell side trade. Also, rules have changed on adjusting trades. Now one can only do it prior to Settlement. Sale trades should be entered as FIFO or LIFO dependent on what you are trying to accomplish for your Cost Basis or maximizing a Gain/Loss. Therefore you only have the day of the trade, at the time of order entry, or the next day to make the adjustment.

Leon Pink

@Mark1104 - Thanks for you ongoing input as well.

Leon Pink

Well I must say this was an involved process to fix. A shout out to @q_lurker whose step by step process lead the way!

Thanks everyone for your input it was greatly appreciated.

Leon Pink

I have added screen shots of the step by step process to assist anyone in the future. The last two screen shots show adding shares on 7/30, but I adjusted back to May 13th after balancing to the Brokerage Firms Average Cost.