LOSSES FROM WASH

SALES
BSA 3 – FIRST SEMESTER
INCOME TAXATION
CZAR YSMAEL RABAYA, CPA
WASH SALE LOSS
 Tax payer CANNOT DEDUCT any loss claimed to have been
sustained from the Sale or other Disposition of Stock or Securities
if, within the sixty-one (61) day period, he has acquired , or has
entered into a contract or option so to acquire identical Stocks or
Securities.

Date of Sale,
30 Days Before Exchange, or 30 Days After
Other Disposition

The 61-Day Period

HOWEVER, this PROHIBITION does not apply in the case of a

dealer in stock if the Sale transaction or other disposition of stock
made in the Ordinary Course of the Business of such dealer.
1. WASH SALE – sale of stocks or securities at a loss, whereby the seller acquired by
purchase or exchange substantially identical stocks or securities within a 61-day period,
beginning 30 days before the sale, and ending 30 days after such sale

a) “Acquired” – acquired by purchase or exchange upon which the entire amount of

gain or loss was recognized by law, and comprehends cases where the taxpayer
has entered into a contract or option within the 61-day period to acquire by
purchase or such an exchange the subject shares of stock

b) “Substantially identical” – similarity in all important particulars (e.g. common

stock and voting trust certificates); the following are not substantially identical:
•Common stock with voting power, and Class A stock having not voting power
•Bonds of the same corporation differing with respect to interest rates, interest
payment dates, and dates of issuance and maturity
•Stocks in a different corporation

c) The stocks or securities are capital assets in the hands of the taxpayer because
wash sales are not made in the ordinary course of business; therefore, losses
arising from transactions involving such assets are capital losses
2. Requisites of wash sale losses:
a) Sale of stocks or securities at a loss
b) Within 30 days before or after such sale, the seller acquired by
purchase or exchange substantially identical stocks or securities
c) Seller is not a dealer in stocks or securities, or even if he was, the
transaction was not made in the ordinary course of business
3. Treatment of Wash Sales
GENERALLY: NOT DEDUCTIBLE from Gross Income
However, the proper interpretation of this provision is that the Wash Sale Loss cannot be
deducted from the Capital Gains of the taxpayer. This is because a Wash Sale is carried out by a
Taxpayer who is either:
a) Not a Dealer in Securities, or
b) A Dealer but the Sale is not in the Ordinary course of Business
In such circumstances, the securities are therefore Capital Assets in the Hands of the Taxpayer,
and any Loss arising from transactions involving such assets, are Capital Losses
4. To Determine Amount of Non-Deductible Wash Sale Loss

Number of Shares Non-deductible Loss

acquired within the 61- xx (Wash Sale Loss) xx
Day period
Number of Shares Not Deductible Loss
acquired within the 61- xx xx
Day period
Number of Shares SOLD xx TOTAL LOSS xx

5. To Determine Tax Basis of Re-acquired Shares

Cost of Acquisition xx
Add: Wash Sale Loss (NDL) xx
Tax Basis or Cost xx
5. Order of disposition of stocks or securities

(a)Where more than one (1) loss is claimed to have been sustained within the taxable
year from the sale or other disposition of stocks or securities, the wash sale provision
shall be applied to the losses in the order of their disposition (starting with the
earliest disposition)

(b)If the order of their disposition on the same day cannot be determined, they will be
considered to have been disposed of in the order of their acquisition (starting with the
earliest acquisition)

(c)The acquisition of stocks or securities resulting in the non-deductibility of a wash

sale loss shall be disregarded in determining the deductibility of any other loss
6. If Shares sold does not qualify as Wash Sale
The Tax Cost Basis of the Subsequent shares bought is at Cost with No Deductible Loss
Added

7. If Shares sold does Qualify as Wash Sales: Use the Formula to Determine Wash
Sales and add the NDL(WS) to determine the Tax Basis of re-acquired shares

8. Gain or Loss for the YEAR: What You Sell should MATCH your Purchase

Selling Price, (1st Sale) xx

Less: Cost, (1st Purchase) (xx)

Loss(xx)

Less: Nondeductible Loss xx xx

Selling Price, (2nd sale) xx

Less: Cost (2nd Purchase) (xx) xx

Loss for the Year xx