Wash Rule- I don't understand the 30 days before part.?

30 days before? What happens in this scenario-





6/24 Buy 100 XYZ


6/24 Sell 100 XYZ no loss (profit)





7/3 Buy 100 XYZ


7/3 Sell 100 XYZ no loss (profit)





7/4 Buy 100 XYZ


7/4 Sell 100 XYZ at a loss


no more purchases of XYZ





SO in the 7/4 loss does the 30 days before apply?


Which means I cannot take a loss?


And does the loss get added backward to the second purchase's cost basis?Wash Rule- I don't understand the 30 days before part.?
%26lt;%26lt;%26lt;SO in the 7/4 loss does the 30 days before apply?%26gt;%26gt;%26gt;





No. There is no reasonable way to conclude you bought the shares on 7/4 to replace shares you sold for a loss, so the wash rule does not apply.





%26lt;%26lt;%26lt;Which means I cannot take a loss?%26gt;%26gt;%26gt;





Assuming you do not buy the same stock again for 30 days you can claim the loss.





%26lt;%26lt;%26lt;And does the loss get added backward to the second purchase's cost basis?%26gt;%26gt;%26gt;





No. It is not a wash sale.





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If you go to the page on ';Wash Sales and Replacement Stock'; at





http://www.fairmark.com/capgain/wash/wsr鈥?/a>





(part of the guide I suggested to you earlier) you will see the key sentence ';But the wash sale rule doesn't apply if the stock you bought wasn't replacement stock.';





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Here is an example where the ';30 days before part'; of the rule would apply.





On July 1 you bought 100 shares for $3,000. On July 8 you bought another 100 shares for $2,000. On July 10 you sold the 100 shares you bought on July 1 for $2,200. The $800 loss would be added to the cost basis of the shares bought July 8.





The whole purpose of the wash rule sale is to prevent someone from claiming a loss while still maintaining the ability to make a profit from the price of the stock increasing. Without the ';before part'; of the rule you could buy shares to replace the shares you were about to sell, maintaining your ability to make money on the stock.





Without the wash sale rule every savvy investor would sell every position he had for a loss and replace the position with new shares purchased at a lower price. This would give the investor an immediate tax benefit on every losing position he had, while he would defer paying taxes on his winning positions because he did not sell them. It is even possible, if he rarely sold the winning positions, that the IRS would end up paying the investor more than it collected from him during his lifetime.Wash Rule- I don't understand the 30 days before part.?
You are correct.





The Wash sale rule applies if you sell at a loss and buy the same security within 30 days before or after. You can not deduct the loss. Instead you increase the cost basis of the purchase by the amount of the disallowed loss.





So in your example, use the loss on the 7/4 sale to increase the basis of the 7/3 purchase.