How to capture loss on prior disallowed wash sale on Form 1099-B
February 15, 2022 11:11 AM Subscribe
Obscure question I know, and I'm prepared to get professional help with it. Thought I'd try here first.
In 2020 I had a disallowed loss on the sale of a mutual fund - it triggered the wash sale rule (I repurchased it too early). My tax software says I can add the disallowed loss to the cost basis when I sell the fund in a subsequent year (I did indeed sell it in 2021). My question is how exactly is this done?
On the current 1099-B worksheet, there is a field for "Adjustment for corrected basis" where I can modify the basis of the 2021 sale as reported to the IRS. Is that all I need to do? It doesn't ask for any additional documentation about why I'm adjusting the reported basis. I was assuming there would be some place I could describe why I'm making the adjustment (because of the disallowed wash sale). Do I need to do anything else. I don't really want to get flagged for an audit over this.
In 2020 I had a disallowed loss on the sale of a mutual fund - it triggered the wash sale rule (I repurchased it too early). My tax software says I can add the disallowed loss to the cost basis when I sell the fund in a subsequent year (I did indeed sell it in 2021). My question is how exactly is this done?
On the current 1099-B worksheet, there is a field for "Adjustment for corrected basis" where I can modify the basis of the 2021 sale as reported to the IRS. Is that all I need to do? It doesn't ask for any additional documentation about why I'm adjusting the reported basis. I was assuming there would be some place I could describe why I'm making the adjustment (because of the disallowed wash sale). Do I need to do anything else. I don't really want to get flagged for an audit over this.
I’m studying accounting but am not an EA or CPA. I don’t know the exact answer to your specifics however the instructions for form 1099B have a fairly large section covering disallowed wash sales on page 10. The IRS also has a taxpayer phone line but they are very swamped this season.
Hope someone more experienced can chime in.
posted by donut_princess at 7:18 PM on February 15, 2022
Hope someone more experienced can chime in.
posted by donut_princess at 7:18 PM on February 15, 2022
Best answer: In general, the 1099-B forms from your broker should do it automatically; you should be able to just input what your broker's form says and it should be fine.
However, you can double-check the numbers. Here's the rough outline:
Suppose that you bought 100 shares of ABC for $5000 total ($50 a share) on 1/1/2019 and then sold them for $4000(=$40 a share) on 5/1/2020. You had a $1000 loss.
If you then bought back 100 shares on say 5/15/2020 for $4200 (=$42 a share), you had a wash sale. That has two implications: first of all, the 5/1/2020 sale gets a $1000 disallowed wash sale adjustment and second of all, the 5/15/2020 purchase gets a basis adjustment. So for the purpose of taxes, your 5/15/2020 shares were bought for $4200+1000 = $5200(=$52 a share).
Then, when you finally sell them, you should report the adjusted cost basis as the cost basis. Your broker's form should do it automatically. You should look at your transactions as reported on the 2021 1099-B and compare the cost basis to the actual one from your trades in 2020. If the reported cost basis is higher than the actual trades, the broker already did the adjustments for you. If they are the same as the actual trade price, the adjustments weren't made and you need to manually make them as you suggest above.
posted by bsdfish at 6:20 PM on February 16, 2022
However, you can double-check the numbers. Here's the rough outline:
Suppose that you bought 100 shares of ABC for $5000 total ($50 a share) on 1/1/2019 and then sold them for $4000(=$40 a share) on 5/1/2020. You had a $1000 loss.
If you then bought back 100 shares on say 5/15/2020 for $4200 (=$42 a share), you had a wash sale. That has two implications: first of all, the 5/1/2020 sale gets a $1000 disallowed wash sale adjustment and second of all, the 5/15/2020 purchase gets a basis adjustment. So for the purpose of taxes, your 5/15/2020 shares were bought for $4200+1000 = $5200(=$52 a share).
Then, when you finally sell them, you should report the adjusted cost basis as the cost basis. Your broker's form should do it automatically. You should look at your transactions as reported on the 2021 1099-B and compare the cost basis to the actual one from your trades in 2020. If the reported cost basis is higher than the actual trades, the broker already did the adjustments for you. If they are the same as the actual trade price, the adjustments weren't made and you need to manually make them as you suggest above.
posted by bsdfish at 6:20 PM on February 16, 2022
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posted by youarenothere at 6:42 PM on February 15, 2022 [1 favorite]