Wash Sales
The purpose of the "wash-sale" rule is to prohibit the taking of a tax loss deduction on a security position that is sold for a loss, if the identical position is repurchased again by the account owner within a reasonable short amount of time.

Wash-Sale Rule:
"A loss deduction is barred if within 30 days of a sale you buy substantially identical stock or securities or a 'put' or 'call' option on those securities."

The wash-sale period actually runs for 61 days total. This starts the 30 days before the sale to the 30 days after the date of sale. The wash-sale rule does not apply to gains, inheritance, tax-free exchanges or acquisitions by gift. The wash-sale rule does apply to spouses as well: whereas, a loss can be disallowed if you realize a loss in a security, and your spouse buys a substantially identical position within the period.

Bargain Sales
Bargain sales occur when a seller gifts or accepts an installment sale on a piece of property to a charitable organization for an amount less than the current fair market value (FMV). Typically, donors will accept less than FMV for a charitable contribution in order to receive a tax deduction.

Current tax law will allow you the full charitable deduction, but you must adjust cost basis which may trigger capital gains. Example:
Bruce owns a Civil War sword that was recently appraised at $40,000 that he would like to see in a museum on display. He paid $20,000 for the sword 10 years ago, and works out an agreement with a museum where they give him his original cost of $20,000 back for the sword.


FMV = $40,000

Adjusted Basis (B) = $20,000

Sale Price (SP) = $20,000

Bruce will get a $20,000 charitable tax deduction; however he will also have a $10,000 capital gain.

Basis allocated to sale = SP x [B/FMV]
= $20,000 x [$20,000/$40,000]
= $10,000

Realized gain = Amount realized (SP) less basis allocated to sale
= $20,000 - $10,000
= $10,000 capital gain

Section 1244 Stock and Installment Sales

Related Articles
  1. Retirement

    Can IRA Transactions Trigger The Wash-Sale Rule?

    In 2008, the IRS said: Yes, they can. Find out what this means and how to avoid penalties.
  2. Investing

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
  3. Taxes

    There's Still Time for Tax Planning in 2016

    Here’s a look at some considerations for year-end planning for taxable (non-retirement) accounts.
  4. Taxes

    Capital Losses and Tax

    Capital losses are never fun to incur, but they can reduce your taxable income. Knowing the rules for capital losses can help you maximize your deductions and make better choices about when to ...
  5. Taxes

    Valuable Year-End Tax Moves for 2016 (Part Three)

    Here's a look at tax strategies for itemized deductions, charitable gifts and other tax credits.
  6. Investing

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  7. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  8. Financial Advisor

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  9. Managing Wealth

    Capital Losses and Tax

    When an investment sells for less than its purchase price, the difference is a capital loss.
  10. Financial Advisor

    Top Tips for Maximizing Charitable Deductions

    Charitable donations can be a great financial planning tool. Here are some ways to make the most of them.
Frequently Asked Questions
  1. How can the price-to-earnings (P/E) ratio mislead investors?

    A low P/E ratio doesn't automatically mean a stock is undervalued, just like a high P/E ratio doesn't necessarily mean it ...
  2. What are the main differences between compound annual growth rate (CAGR) and internal rate of return (IRR)?

    The compound annual growth rate (CAGR), measures the return on an investment over a certain period of time. The internal ...
  3. What are the differences between gross profit and gross margin?

    Learn how gross profit and gross margin are calculated and how each is used in fundamental analysis. Generally, these numbers ...
  4. How do I calculate the adjusted closing price for a stock?

    When trading is done for the day on a recognized exchange, all stocks are priced at close. The price that is quoted at the ...
Trading Center