From: ask@cbnews.cb.att.com (Arthur S. Kamlet)
Newsgroups: misc.invest
Subject: Re: Help with wash sale
Keywords: wash sale, taxes, tax year
Date: 12 Nov 92 23:32:35 GMT
Distribution: usa
Organization: AT&T Bell Laboratories,  Columbus, Ohio

In article <12NOV199214162099@robot.nuceng.ufl.edu> glowboy@robot.nuceng.ufl.edu (Louis Iselin) writes:
>I think I understand the gist of wash sales, but how does one
>go about using the wash sale rules to determine when and how
>much on tax losses?  I have a specific example and I am
>very interested in advice so I can plan for April ...
>
>09/15/92     sold naked puts on XYZ 2@45  net  $   125.00
>10/08/92     eats 200 XYZ @ 45                 $ -8750.00
>10/23/92     bails 200 XYZ @ 30 1/2            $  7000.00
>10/27/92     buys 44 XYZ @ 25                  $ -1100.00
>11/12/92     sold naked put on XYZ 1@25        $   100.00
>
>First, no jokes on how foolish I am.  I like to lose money :)

Well, I don't know about you, but I think you're making out great
with your broker.  Anytime I sell 2@45 and end up with $125,
or buy 200@45 and it only costs me 8759, I am making out like a
bandit!


Who was that masked broker, anyway?


>The numbers are rounded, as are the dates and I'm embarassed to
>admit what the real stock is.


I also think you might have added commissions when you should
have subtracted etc.

>
>How do the wash sale rules apply to the 92 and 93 tax years for the
>last put.  It is a contract to buy the same stock, but I don't know


Not enough information.


Were the first and last puts for the same expiration date?

If not, don't worry at all about the wash rules for the put itself,
since options with different expiration dates are not "substantially
identical."


>how to determine when to take the loss if the put expires worthless?
>And what if it expires in February?  Now the real kicker is how do I
>fill out the Schedule D line on this series of transactions?


As long as a put transaction is still open, assuming this put is for
an ordinary stock like XYZ Corp, you do not have any reportable tax
event.  If the put is exercised, your reportable event is delayed
until you sell the stock for which you got put. In that case, you
decrease the cost basis of your put stock by the net premium
received from sale of the put, unless you would have  a wash sale
for the the stock.  In that case, the stock covered by wash sale
rules (44 shares in your example) gets a cost basis equal to the
sales price, and you defer the difference between that basis and
your actual basis until you close (non wash sale) your position.


Report two items on your 92 Schedule D:  A 44 share transaction
with no reportable loss, (that's part of the original 200 shares,
and is not part of the subsequent 44 shares)  and the 200-44 = 156
shares on which you take your loss.

So when you finally dispose of your 44 shares, you add this
difference to the true cost basis of those 44 shares.  What you will
have done is defer the reportable loss of those 44 shares until you
finally sell them in a non-wash sale.

Amortize your net option premium equally for the 200 shares.

If your put expires or if you buy your put back to close out your
transaction (position) in the put, at that time you have a
reportable (taxable) event in the put itself.  But if the put is
exercised, see above.

If the put were part of certain types of straddles (I need the book
to see which) or for indexes or futures, then you have to mark up
any gains in the option as of year end, but for ordinary stock
options, you don't have to "mark to market."

DISCLAIMER:  I'm not a lawyer or a CPA and this information is not
             to be considered to be advice in any way.
-- 
Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus