Wash Sales Across
Okay, now you potentially have a real mess.
You have been trading the same securities using multiple brokerages and perhaps different strategies, different strikes and different expirations at each.
But in each case, you have been assigned shares at different times and at different strike prices. But those assignments and exercises involve the use of the same underlying security.
The best advice I have is … “Don’t do that!!”
But here is the next best advice …
The Transactions ...
There can be many scenarios derived that can place a trader into this situation. But here is an example that even challenges me:
Let’s use Intel (INTC) as an example for our underlying:
In Brokerage ABC INTC is sold at a loss of $239 on 5/17/2017
In Brokerage DEF INTC is purchased on 5/25/2017, therefore a substantially identical security is acquired within 30 days
In Brokerage ABC INTC is again purchased on 6/8/2017
In Brokerage XYZ INTC is purchased on 6/15/2017
Back in Brokerage ABC, INTC is sold at a loss of $294 (???) on 6/29/2017
In Brokerage XYZ INTC is sold at a loss of $107 (???) on 7/13/2017
What is the wash sale treatment for these transactions?
On 4/27/2017 a loss of $239 is generated at Brokerage ABC.
On 5/17/2017 that loss at Brokerage ABC is now considered non-deductible by virtue of the Wash Sale rules at Brokerage DEF. Therefore, the $239 loss from Brokerage ABC is theoretically added to the basis of the shares now at Brokerage DEF.
This mystery is even more evident in the next sale at a loss.
On 6/29/2017 a sale at Brokerage ABC again generates a $294 loss, or does it? Remember that the sale of securities are on a FIFO basis (First In First Out absent a specific identification and written confirmation from your broker) so the sale of the INTC shares on a FIFO basis are the shares purchased at Brokerage DEF. The DEF shares were purchased on 5/25/2017 for $36.26 per share and thus generates a $272 loss. But wait … there was a Wash Sale generated at ABC that is added to the basis of the shares purchased at DEF resulting in those shares having a basis of $3,865 thus generating a $511 loss.
So these transactions beg more than a few questions:
How can basis mysteriously transfer from one brokerage to another?
How can one be deemed to sell shares at one brokerage that do not exist at that same brokerage, ie, the 6/29/2017 sale of DEF shares from Brokerage ABC?
If it is concluded that the sale from ABC out of DEF is utterly ridiculous, does the Wash Sale at ABC of $239 then attach to the shares purchased at ABC on 6/8/2017 thus making the basis of those shares $3,887 and the loss $533?
In this example there are a total of seven transactions.
What if each of the Buys were generated from the sale of puts and the shares assigned? As we have seen from this website, the basis of those shares are adjusted by the premium received from the sale of the put.
Further, what if each sale was the result of a short call in a covered call strategy? The call premium is included in the proceeds of the sale of the underlying.
What if there were hundreds of transactions across each of these three brokerages?
Also, how would the 1099-B be reconciled on Form 8949 when a Wash Sale was generated but the 1099-B does not include it, or vice versa?
Again, these rules represent another example of the Internal Revenue Service’s philosophy of Ready-Fire-Aim!!
Example Data for Wash Sales
So What's a Trader To Do?
So, back to my next best advice ...
Make sure you read through the Doing-It-Yourself section of this website.
You will need more than a cursory knowledge of Excel in order to manipulate the data and test for wash sales across multiple brokerages.
Separate each broker's data into the same stock symbol per the instructions below and then combine them by symbol for all brokerages.
Multiple Brokerage Data Columns for Excel Sort
The process would be to sort the data independent of the Brokerage.
The sort criteria would be:
Description - preferably by OSI Symbol
This should get all transactions in the order in which they occurred.
You will use the ‘Brokerage Designator’ in order to sum the transactions so they can be tied to the Brokerage’s 1099. This can be anything that makes sense, OX for optionXpress, etc
Unfortunately this might also cause an assignment, exercise or wash sale across brokerages. In other words, stock at Brokerage DEF is assigned from a short put placed at Brokerage ABC and then the short call exercise at Brokerage DEF for a small loss might cause Wash Sale treatment at Brokerage XYZ.
Like I said ... A real mess!!