My broker provides cost basis report with wash sale adjustment, why do I still need to buy Trademax?

According to the definition of Wash Sale in IRS publication 550:

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days

before or after the sale you:

1. Buy substantially identical stock or securities.

2. Acquire substantially identical stock or securities in a fully taxable trade.

3. Acquire a contract or option to buy substantially identical stock or securities.

The full publication can be found by contacting your local IRS office or visiting the IRS Web site at www.irs.gov

 

In 2008, the IRS issued Revenue Ruling 2008-5,In this ruling, IRS said, If an individual sells stock or securities for a loss and causes his or her individual retirement account or Roth IRA to purchase substantially identical stock or securities within 30 days before or after the sale, the loss on the sale of the stock or securities is disallowed.

When you calculate cost basis with wash sale adjustment, you need to combine all investments accounts owned or controlled by you, including your spouse’s account or any corporate account you control.

The wash sales rule also applies to short trade.

We rephrase Wash Sale Rule in a easy understandable sentence. “A Wash Sale occurs if you close an open position (An open position could be a long position or a short sale) of stock or securities at a loss and within 30 days, before or after the sale, you acquire an open position of substantially identical stock or security as a replacement in any associated account.”

In certain circumstance, substantially identical stock or security could include but not limited to

  1. Same stock listed in different stock exchange
  2. Same stock with certain type of preferred shares
  3. Trades between stock and option with same underlying
  4. Trades between stock and future/warrants with same underlying
  5. Trades between certain type of call option and put option at different strike price etc.
  6. Trades between securities with same security type but different orientation(Long and Short should be treated differently)
  7. Trades between certain securities issued by same company

 

TradeMax allows user to make own definition of substantially identical stock or security to suit various customer needs.

The wash sale rule aims to prevent an investor from obtaining the benefit of a tax loss without materially reducing economic exposure to the investment, so that investors cannot deduct losses from sales or trades of stock or securities when wash sale rules apply.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.

The description above refer to http://www.irs.gov/publications/p550/ch04.html#en_US_publink100010601

Now many brokers have provided detailed cost basis report with calculated wash sales, but confined to report wash sales within the same account and for the same CUSIP, taxpayers are responsible for reporting wash sales for identical as well as substantially identical securities, across all owned taxable accounts. As for different and complicated wash sale scenarios, the cost basis report and wash sale calculated is far from accuracy and completeness.

Definition of substantially identical securities TradeMax Broker Cost Basis Report Other Tax Software
Securities with same CUSIP Supported Supported Supported
Same stock listed in different stock exchange Supported Not Supported N/A 
Same stock with different preferred shares Supported Not Supported  N/A
Trades between stock and option with same underlying Supported Not Supported  Limited function 
Trades between stock and future with same underlying Supported Not Supported  Limited function
Trades across different accounts and joint accounts Supported Not Supported  N/A 
Trades between call option and put option at different strike price etc. Supported Not Supported  Limited function 
Trades between securities with same security type but different orientation Supported Not Supported  N/A 
Trades between securities issued by same company Supported Not Supported  N/A 

TradeMax can not only auto-identify different complicated wash sale scenarios, but also can calculate wash sales across different accounts very accurately. With TradeMax, the users can maximize profits and figure out the disallowed losses and deductable losses by TradeMax which strictly coincides with the Wash Sale Rule of IRS. Inaccurate report means intangible losses in time and money which can be saved by using TradeMax’.