Wash Sale Adjustment Calculation

[stevetone]

This is a lot of data to throw into a forum post, so forgive me. I'm not sure that I am understanding how FM calculated the Wash Sale Adjustment for this sale.

Bond Fund X has the following transactions:

3/4/08 Buy 3,898.635 shares for $40,025 ($10.26/shr + $25 com)
4/2/08 RnvDiv 11.024 shares for $112.67 ($10.22/shr)
5/2/08 RnvDiv 12.035 shares for $122.76 ($10.20/shr)
6/3/08 RnvDiv 11.326 shares for $115.30 ($10.18/shr)
7/2/08 RnvDiv 12.387 shares for $123.50 ($9.97/shr)
7/3/08 Sell 250.752 shares for $2,475 ($9.97/shr + $25 com)

Although I don't think that this is pertinent to this sale, later on in the year all shares were eventually sold.

Anyway, the 6/3 and 7/3 transactions are within the wash sale range. There is no loss on the 7/2 shares, but the loss on 6/3's 11.326 shares is disallowed. The basis on those shares is, from my calculations, $10.2664/share (purchased on 3/4). So the Wash Sale Adjustment on the Capital Gains Report should be $0.3964/share, or a total of $4.49. But on the Capital Gains FIFO Report it shows an adjustment of $9.39. The 7/3/08 Sale line right above it on the report shows a total loss of $99.33.

Where have my calculations gone wrong? (BTW, wash sales are not my strong point, obviously...)

[Mark]

Hi stevetone,

Wash sale rules can be confusing. The disallowed loss of $9.39 is correct, and is calculated by multiplying the loss/share times the number of 'replacement' shares purchased. The loss/share is $0.3964/share and you bought replacement shares on both 6/3 and 7/2, for a total of 23.713 shares. ($0.3964/share * 23.713 shares = $9.39).

The loss is being realized by selling shares you purchased on 3/4. It doesn't matter whether the replacement shares purchased on 6/3 and 7/2 were purchased at a price above/below where you sold on 7/3. They are still replacement shares, because they were purchased within the wash sale window.

[stevetone]

Thank you so much--I am beginning to understand

[stevetone]

Mark, thank you for educating me on the Wash Sale rules. After working through it manually, I finally get it.

May I suggest a possible enhancement to the Capital Gains Report when using Wash Sale rules? In addition to managing investments for clients I prepare income tax returns, and as a result I use ProSeries tax preparation software. When entering capital gains, I can flag Wash Sales on a line-by-line basis, where each line essentially has the info found on the FM Capital Gains Report.

One flagged as a Wash Sale, ProSeries makes an adjustment that cancels out the loss shown. And herein comes the enhancement request.

With FM, the adjustment for the disallowed shares is shown below the entire sale transaction, even if not all shares were disallowed. While as you've shown me this is correct, when entering the information using ProSeries software I must split out those shares affected by the Wash Sale rules and place them on their own line, so that they may be canceled out when marked as a wash sale.

It would be great if FM would show all of the information for all shares of the disallowed loss, including Bought, Sold, Term, Sell Value, Cost Basis and the adjustment. This information then could be entered into the ProSeries software as shown, marked as a Wash Sale, and all would be well.

Now, since I have not used other tax preparation software I do not know if they all work this way. If I was manually preparing the return I could pencil in the adjustment as FM currently shows. But with ProSeries at least, I must split out the shares on their own line prior to entering.

Besides, it would make the Wash Sale Rules easier to understand, as all of the information that went into the adjustment calculation would be shown on the report (and maybe reduce the number of uninformed questions like mine )

Again, perhaps this is unique only to my situation, but I thought I'd throw it out in case you get another request for such an enhancement.

Thank you for all your help and for creating such a useful product!

Steve

[Mark]

Hi stevetone,

Thanks for the feedback. It does make sense to me to add this additional information to the wash sale adjustment line, or at least make it an option. We will consider this for a future update.