4 ms·

The intent of disallowing wash sales is to stop people from gaming the system to strategically realize "fake" losses in one security to offset gains. If we allo

by twalla 4y ago

The intent of disallowing wash sales is to stop people from gaming the system to strategically realize "fake" losses in one security to offset gains. If we allowed wash sales you could make 100 dollars in profit from your sale of stock A and then wash sale 10 shares of stock B at 10 dollars, down from 20 and say you made no money this year, when, effectively you made 100 dollars and you still have the same number of shares of stock B. The intent of performing the wash sale isn't to reduce your liability from proceeds of the future sale of whatever security you're trying to "wash", it's to use the wash to offset this year's gains from the sale of other securities.

dataflow 4y ago
You're not accounting for the reduction in cost basis that would increase your future taxes though?
- twalla 4y ago
  Like some other commenters have called out it kind of just kicks the can down the road, but the longer you can kick that can down the road the longer you can reap the benefits of compound interest.
  - MikePlacid 4y ago
    Yes, you and I would have reaped the benefits of compound interest - if the “wash sales” law is repealed. What’s wrong with that?
    - anonymouskimmer 4y ago
      A couple of things wrong with wash sales: 1) I can't reap the benefit, because I don't have enough income to save for retirement (outside of my pension). If I did, like most people, I'd likely be saving in something like a 401(k) that is tax-deferred. Tax-deferred retirement accounts, by law, gain no additional tax benefit from a wash trade. https://www.irs.gov/newsroom/what-if-my-401k-drops-in-value https://www.irs.gov/newsroom/what-if-my-401k-drops-in-value 2) You incentivize people to sell and buy additional securities outside of their normal investment planning. This will have a market distorting effect when compounded over many, many stockholders.
  - dataflow 4y ago
    I get that part but the difference in compound interest still seems too small compared to their multi-billion-dollar assets. The real issue seems to be inheritance tax cost basis step-up, if I'm understanding correctly. Which would explain why generational wealth is such a bigger deal than people give it credit for.

by twalla 4y ago

dataflow 4y ago

You're not accounting for the reduction in cost basis that would increase your future taxes though?

twalla 4y ago
Like some other commenters have called out it kind of just kicks the can down the road, but the longer you can kick that can down the road the longer you can reap the benefits of compound interest.
- MikePlacid 4y ago
  Yes, you and I would have reaped the benefits of compound interest - if the “wash sales” law is repealed. What’s wrong with that?
  - anonymouskimmer 4y ago
    A couple of things wrong with wash sales: 1) I can't reap the benefit, because I don't have enough income to save for retirement (outside of my pension). If I did, like most people, I'd likely be saving in something like a 401(k) that is tax-deferred. Tax-deferred retirement accounts, by law, gain no additional tax benefit from a wash trade. https://www.irs.gov/newsroom/what-if-my-401k-drops-in-value https://www.irs.gov/newsroom/what-if-my-401k-drops-in-value 2) You incentivize people to sell and buy additional securities outside of their normal investment planning. This will have a market distorting effect when compounded over many, many stockholders.
- dataflow 4y ago
  I get that part but the difference in compound interest still seems too small compared to their multi-billion-dollar assets. The real issue seems to be inheritance tax cost basis step-up, if I'm understanding correctly. Which would explain why generational wealth is such a bigger deal than people give it credit for.