Q. I know that if I sell an investment at a loss and repurchase the same or a similar investment within 30 days, the feds consider it a "wash sale" and do not allow you to claim the loss of the original sale for tax purposes. If I sell an investment at a profit, I owe taxes on that profit. What happens if I repurchase that investment but it loses value so I sell it at a loss. Can I claim the loss on the second transaction?
— Investor
A. You are correct about the wash sale rules. You can’t buy the same investment within 30 days of the date you sell it.
The rule actually applies to a 61-day period: 30 days prior to the sale, the sale date, and 30 days after the sale, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
“In your scenario, you incur a loss on the repurchased stock, and absent a purchase of the stock that you sold at a profit within 30 days of the second sale generating the loss, you would not violate the wash sale rule and you would be able to claim the loss on the second transaction,” he said. “Likewise, you would need to refrain from repurchasing the stock again within 30 days of the second sale.”
Keep in mind that after netting capital gains and losses, if an overall capital loss is generated for the year, only $3,000 of the loss can be claimed, or $1,500 if your filing status is married filing separately, he said.
Any excess above the allowable deduction is carried forward indefinitely, he said.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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