CPA REG Exam-Property Taxation-Wash Sale Rules-By Darius Clark. i75cpareview.com #cpaexam

https://course.i75cpa.com/course/dari... The CPA Regulation (REG) exam often tests the wash sale rule as part of Individual and Property Taxation. The wash sale rule is designed to prevent taxpayers from claiming a loss on the sale of a security when they repurchase substantially identical securities within a specified period. The wash sale rule applies if a taxpayer repurchases substantially identical securities within: 30 days before the sale, 30 days after the sale. This results in a 61-day window in which the repurchase disallows the loss. The disallowed loss from a wash sale is not gone forever. Instead, it is: Added to the basis of the newly acquired securities. Deferred until the new securities are sold in a taxable transaction. Note that the wash sale rule applies only to losses, not gains. You can sell a stock at a gain and repurchase it the next day and the gain is still taxable. But if you sell a stock for a loss, the IRS expects you to “Wash Your Hands” of that stock for at least 30 days before and after that sale, in order to deduct the loss. A key part of the definition of a wash sale is the phrase "substantially similar", so it's important to understand what that means. Whenever you're selling and repurchasing shares of stock in the same company, such as Larkin Corp in the previous questions, those shares are considered "substantially similar" and will be subject to the wash sale rule. In general, shares of stock in two different companies are not considered substantially similar. Bonds and preferred stock of a single company may be considered substantially similar if both are convertible to shares of common stock. However, shares of a company's stock and an exchange-traded fund (ETF) with a significant percentage of its holdings in that same company are not considered substantially similar. Wash sale rules apply to the investor rather than to a particular account when an investor holds both a brokerage account and an individual retirement account (IRA). If an individual purchases and sells shares of XYZ in his brokerage account and then re-purchases them in his IRA, this transaction would still be considered a wash sale.