I am using this Tax Return Preparation Software for about 3 years now. Before that time, I went to CPA for the help, but I had some arguments with one of the CPAs and decided do it by myself.

Preparing Tax Return was not an easy task at first, but I am kind of used to it and feeling comfortable. I was able to finish it off within few hours.

But this year, I have lots of trading transaction entries in my 1099-B form and the software I am using does not provide the functionalities to calculate the Wash sale. So I just spent 6 hours try to understand what is the Wash Sale and how to calculate them.

According to the IRS Publication 550,

Wash Sales

You cannot deduct losses from sales or trades of stock or securities in a wash sale.
Awash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

• Buy substantially identical stock or securities,
• Acquire substantially identical stock or securities in a fully taxable trade, or
• Acquire a contract or option to buy substantially identical stock or securities.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock of securities. The result is your basis inthe new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.

Example 1. You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to to obtain your basis in the new stock, which is $1,050.

Ok, if you had Wash Sales for a particular stock , you should seriously consider selling all the rest of the stock before the year ends. During the wash sales, the loss is not accountable for the tax return until you sell out all of the stocks (and not buying the same stocks again within 30 days). If you don’t, you probably have to pay the taxes for the positive gain amount occurred during the Wash Sales. That’s really the worst. Think about it! You actually had loss, but you also need to pay taxes!

I tried searching Google for free Wash Sales Calculation software and tried some, but they are all shareware and will not allow me to generate the schedule D unless I buy the software.

So, I decided to work on a PHP page that can generate the Wash Sales Schedule D list. I will post the link once I finish with it.

Reference

• IRS TAX GUIDE (Investment) http://www.irs.gov/pub/irs-pdf/p550.pdf
  (Page 56 describes Wash Sale in detail)

• Also this link show nice example: Link