Hey guys -

I'm working on extending my tax return right now and I think my broker has been ****ing **** up. It looks to me like my broker has misidentified some of wash sales (i.e., flagging transactions as wash sales that shouldn't be.)

Basically, if I have a position that's a loser, I might sell half my shares in one installment and then later in the day in a second installment.

So for example:
Feb 1st: Buy x number of shares
Feb 5th: 8am: Sell x/2 shares for a loss
Feb 5th: 10am: Sell remaining x/2 shares for a loss

Based on my understanding, this is not a wash sale provided I don't buy the shares back for another 30 days, but my brokers (I use IB and Vanguard) are both flagging these as wash sales.

Has this happened to anyone else before? I don't really have time to look at this in detail, but this doesn't look correct to me. Thanks.

It's not a wash sale. I suspect you bought back a "substantially identical" security within 30 days

And this belongs in the general questions thread

No, I didn't. And no, it doesn't.

This happened to me last year with a different discount broker, except my buy was also split on the same day (not the same day as the sale, which was split on a different day).

In the past I could always determine which lot (first, last, lowest, highest, etc.) was being sold after the fact, when filling out schedule for taxes. However, at some point they changed that, so now I have to select which type lot (via which category) before making the sale (I wasn't aware I had to do that, so wasn't looking for that option) or else it uses my default selection (which can be changed). I don't recall being notified of this change, which sorta ticked me off (the wash sale was only ~$100), although it's possible I overlooked such notification.

Yes I think this can happen when you are scaling in and out of positions - the broker might flag transactions as wash sales even if they aren't.

I looked into this a bit and you can fix this on your Schedule D (report the basis as being incorrect, and attach a statement explaining why it's incorrect.) So, no harm no foul for me since I'll just report the sales as not being wash sales on my tax return, but something other people on this forum might want to be aware of since this can be an expensive error.

not sure what happened with your broker but i thought the rules or interpretation of them was still grey..... waiting for a first major tax case involving it and get some higher court to clarify.

i would think though if you change fund companies for s&p 500 index fund you should be ok as millions of people do that and interpret it as ok so far. and broker should support that.

if it happens that courts come down negatively on it, it would mostly likely affect the future more than the past.

i may be wrong about some of what i wrote. but i thought it would add color and that's my recollection of said issue

so the "substantially identical" rule is meaningless in practice? those are way more fungible than most exchange traded commodities