IRS Tax of 500% is (obviously) Unfair

[agogodaddyo]

Last year I placed my life savings of $200,000 into a TD Ameritrade account. I chose to work in the volatile oil & gas sector. There were many days were the stocks I worked in were up or down 15-20%. At the end of the year my account was $400,000. I should be paying capital gains on $200,000 but my account statement shows that my gains were $800,000 due to the Wash Sale rule which says that if a stock is sold at a loss then bought back again, the loss does not credit toward gains/loss totals.

So if I buy $50,000 of stock and that stock drops forcing me to cut the loss, say at a $10,000 loss, then the stock finally settles and begins to climb, where I get back into the stock and end where I started at $50,000, I will now owe the IRS because they count a profit of $10,000 even though my profit is $0.

Anyway, because of this rule the IRS intends to wipe out my entire account, taking a total of $400,000 tax for the untrue gains of $800,000.

How is this fair or honest? Any suggestions or knowledge would be helpful.

Jeff

 

[lawrence-lugar]

That seems absured...can't be right? :|
You should talk with a local tax professional

 

[agogodaddyo]

Yes the TD Ameritrade year end statement show Net Gains/Loss as $800,000. There is a section that shows total proceeds, total cost basis, and most importantly Wash Sale Loss Disallowed. That section wipes out against the cost basis section resulting in the huge disparity. I looked up the meaning of the Wash Sale to find that it is true, that it does offset in the IRS favor. The running (sad) joke is "Heads we win, tails you lose" so says the IRS.

I do intend to check with a tax pro but thought I would ask here too, just to see what you all think

 

[lawrence-lugar]

I remember when I first traded, my first year...
I was surprised to see my total trading volume as $415K from my small account from my annual brokerage statements. -- Trading in and out really adds up.
I was up and down -- but I didn't owe taxes because I had a net loss.
But in my case, I traded different stocks...not the same things...so that Wash sale rule didn't apply to me, if that is the case.

 

[TexasRangersFan]

Last year I placed my life savings of $200,000 into a TD Ameritrade account. I chose to work in the volatile oil & gas sector. There were many days were the stocks I worked in were up or down 15-20%. At the end of the year my account was $400,000. I should be paying capital gains on $200,000 but my account statement shows that my gains were $800,000 due to the Wash Sale rule which says that if a stock is sold at a loss then bought back again, the loss does not credit toward gains/loss totals.

So if I buy $50,000 of stock and that stock drops forcing me to cut the loss, say at a $10,000 loss, then the stock finally settles and begins to climb, where I get back into the stock and end where I started at $50,000, I will now owe the IRS because they count a profit of $10,000 even though my profit is $0.

Anyway, because of this rule the IRS intends to wipe out my entire account, taking a total of $400,000 tax for the untrue gains of $800,000.

How is this fair or honest? Any suggestions or knowledge would be helpful.

Jeff

I wonder if that is true for commodities like wheat , oil and corn ?

Why is that rule valid for stocks but not clothes, furniture and other consumer products ?

It does not seem fair to me though, what you are having to face. It seems that one loss should offset a gain. I wonder if they do that to discourage speculation or if it is because the guys that collect taxes don't know anything about the stock market and risk taking.

 

[wackypete2]

Last year I placed my life savings of $200,000 into a TD Ameritrade account. I chose to work in the volatile oil & gas sector. There were many days were the stocks I worked in were up or down 15-20%. At the end of the year my account was $400,000. I should be paying capital gains on $200,000 but my account statement shows that my gains were $800,000 due to the Wash Sale rule which says that if a stock is sold at a loss then bought back again, the loss does not credit toward gains/loss totals.

So if I buy $50,000 of stock and that stock drops forcing me to cut the loss, say at a $10,000 loss, then the stock finally settles and begins to climb, where I get back into the stock and end where I started at $50,000, I will now owe the IRS because they count a profit of $10,000 even though my profit is $0.

Anyway, because of this rule the IRS intends to wipe out my entire account, taking a total of $400,000 tax for the untrue gains of $800,000.

How is this fair or honest? Any suggestions or knowledge would be helpful.

Jeff

That's not completely correct. The disallowed loss is added to the cost of the replacement shares you bought. So, it's as if you bought the replacement shares for the price you paid plus the disallowed loss. In effect the loss is delayed. The TD Ameritrade report won't show this. You have to do the accounting yourself and report it to the IRS on schedule D.

Here is a good explanation of wash sales:
http://www.fairmark.com/capgain/wash/ws101.htm

The IRS regulations:
https://www.irs.gov/publications/p550/ch04.html

Peter

 

[Sasha188]

Last year I placed my life savings of $200,000 into a TD Ameritrade account. I chose to work in the volatile oil & gas sector. There were many days were the stocks I worked in were up or down 15-20%. At the end of the year my account was $400,000. I should be paying capital gains on $200,000 but my account statement shows that my gains were $800,000 due to the Wash Sale rule which says that if a stock is sold at a loss then bought back again, the loss does not credit toward gains/loss totals.

So if I buy $50,000 of stock and that stock drops forcing me to cut the loss, say at a $10,000 loss, then the stock finally settles and begins to climb, where I get back into the stock and end where I started at $50,000, I will now owe the IRS because they count a profit of $10,000 even though my profit is $0.

Anyway, because of this rule the IRS intends to wipe out my entire account, taking a total of $400,000 tax for the untrue gains of $800,000.

How is this fair or honest? Any suggestions or knowledge would be helpful.

Jeff

Hi Agogodaddyo, just wondering how you got this problem solved. A friend of mine encountered the same issue. He is frustrated and not sure what's the best to solve the problem. Can you please contact me when you see my message. Thanks!