I am fairly new to trading and investing, having never done it myself. I joined a startup and got in at the right time, and the stock grew the entire time I worked there. I was given many stocks during my tenure there, including short term and long term gain stock which I could've gotten taxed capital gain on. I left the company a few years ago and bought the stocks outright in my name when I left because I just didn't want this employer to control them anymore. The company gave me several different lots of the stock, for example I had 100 shares at $20 one year, 120 shares at $70 another year, 200 shares at $150 another year depending when the employer gave them to me. When I left, the stock was peaking around $200. But a few months after I left coincidentally the stock started gradually declining. I was also given some stocks that were labeled 'short term gain' and 'long term gain' stocks but didn't research in depth about them. As I said, I am fairly new to stocks. I have been busy with life since I left this company. I had noticed the stock declining over time but didn't bother to touch it because I didn't know what I was supposed to do. With this COVID-19 crash, this stock crashed even more. I finally caved and sold all my shares (1000) at the lowest price $50 this past week. I know I sold at a loss. Here is where my story turns. It sounds crazy but I felt I did the right thing in my gut by selling at $50. A few days later, I bought 900 stocks of this same stock and plan to keep them for long term. The stock has been fluctuating around $60, and I bought it at $55 this past week. I reasoned that I have 900 shares of $55 so I would fare better by having them all at the same price long term versus what I had before which were different lots at different values. I didn't actually do the math beforehand whether I was right or not about this. I was purely following a gut feeling. If the stock rises again back to $200 or maybe $300 one day, I want to sell them and possibly can make ($200-$55)*900 = $130,500 from those 900 shares one day. My question is, did I make a mistake initially selling then buying back a few days later? Will I have to report my losses on my taxes next year and I won't receive a tax refund? Please let me know what you think about my story. I found this article https://finance.zacks.com/30-day-rule-buying-selling-stock-2065.html about a wash sale which I am still trying to understand.
You ran afoul the wash rule, so it means that most of whatever losses you took on your stock cannot be claimed as a loss on your 2020 income tax return. Your brokerage (or whoever is holding your shares) should issue you a 1099 next year and clearly show the amount subject to the wash rule, and that amount can be plugged into your favorite tax software along with the basis price and amount of your stock re-purchases and automatically calculate for you how much of the loss you can claim (it will likely represent the small remaining amount of the $5 per share between your $50 sell price and your $55 repurchase price). Your new basis will be of course $55 and you will pay the full tax on the cap gains (with no offset loss from the shares you recently sold) if/when you eventually sell for a gain. As for the tax owed/refund implications, you should know that cap gain losses are limited to $3,000 after offsetting cap gains. So unless you had a lot of cap gains in 2020, the impact to your ultimate 2020 tax owed/refunded could very well be insignificant depending on your wage and other income and taxes paid situation.
You won't like this answer, but you made 2 mistakes. But we've all made these mistakes too. 1) You didn't have an exit strategy. If you did, you would have limited yourself to at most a 5% loss before this crash happened. One very good exit strategy is to run you price on your stock along with a 200 day SMA (smooth moving average) line. If the stock price ever drops below this 200 SMA, then SELL it all. BTW, put the chart at either a 6 month or 1 year time frame. Do this now, just to see where you would have sold at, and see how it would have done for you. Also one should just check this setup, while you have the stock, on the last day of the month, so only once a month, OR if you hear huge news, like we did on the coronavirus. If when you saw news like we did, checking your chart setup, you would have seen it was giving a SELL. Only checking once a month normally, would keep you from bouncing in and out too much, yet still protect you from big downswings. 2) After taking the big loss, you bought back in near the bottom. We've all done this. If and when you've taken a big loss like that, it's usually better to just ride it out. Those that do, usually recoup their losses within 1 to 4 years. Long time I know, but better than taking the big loss. At least get this book for a start - STOCK MARKET CASH TRIGGER: Learn A Simple Technique That Tells You When To Go To Cash David Alan Carter You may also want to get this book - Your Future Paychecks And Raises: Get Dividend Checks In Your Mailbox Paid To The Order of You! by John Roberts You sound maybe in your late 20's or maybe early 30's? This may have been a good thing, to make a mistake. Because you'll learn from it, and for the next 20-30 years, you could become financially independent and/or a multi-millionaire.
thanks for your replies. I am digesting them. If the stock shot up again to $200 or $300 later this year, and I sell the 900 shares at $55, would I be be reporting a loss still if I sold, bought and again sold all in the same year? What would a situation like that look like? I am still trying to understand all the intricacies of this which now seems to be more than I first anticipated.
(1) You don't really "report a loss". Rather, you report income. For stocks, you report capital gains income MINUS capital losses. (2) If you take a loss in a stock, then turn around and buy that same stock within 30 days (in any account, not just the one you took the loss in), you cannot count the loss against your gains for the year. And your cost basis in that stock is reset to the new price. That is the essence of the wash sale rule. (3) If you buy and and sell the same stock multiple times in a year and have no losses, you do not really need to worry about the wash rule. However, if your most recent purchase is within 30 days of your last sale (no matter whether your last sale was a gain or a loss) and then you eventually sell it for a loss on that most recent purchase, then some portion of that loss may not be summed against capital gains for the year. Your brokerage in all likelihood would not track to that level of detail, and it's on you to keep the records straight.
