I understand that if you sell stock in order to realize a loss, you
cannot buy it back for 30 days. What if instead you bought additional
stock (say a thousand shares)the day before you sold an old lot of one
thousand shares for which you would like to realize a loss. In other
words, you still believe that the stock will increase in value, but
you want to be able to deduct the loss for tax purposes. Is this
legal? An acceptable answer will include a specific reference with
page number from a published and respectable source. Let me know if
the question needs clarification.

Hi wurzelma-ga,

The loss would not be deductible in the circumstances you describe.

As you know, you can't deduct the loss if you buy back the stock
within 30 days after you sell it.  You also can't deduct it if you buy
essentially the same stock within 30 days before you sell it.

Internal Revenue Service publication 550, "Investment Income and
Expenses," for tax year 2003, says:

"Wash Sales

You cannot deduct losses from sales or trades of stock or securities
in a wash sale.

A wash sale occurs when you sell or trade stock or securities at a
loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,

2. Acquire substantially identical stock or securities in a fully taxable trade, or

3. Acquire a contract or option to buy substantially identical stock or securities"

Source:

http://www.irs.gov/publications/p550/ch04.html#d0e12075

This is on page 55 of the document.  It's available in PDF format from

http://www.irs.gov/pub/irs-pdf/p550.pdf


Additional Links

"Understanding the Wash Sale Rules" from SmartMoney.com

http://www.smartmoney.com/tax/capital/index.cfm?story=washrules

"Wash Sales" article from The Motley Fool

http://www.fool.com/taxes/2000/taxes001006.htm


Search Strategy

I recognized this as a wash sale situation, so I just searched for "tax wash sale."


I have assumed that you were asking about the rules for the United
States of America.  If that was wrong, let me know in a request for
clarification, and I will either find the information for your country
or have my answer withdrawn so that another researcher can tackle the
question.  Also, if the answer is unclear or you need more
information, please ask for a clarification.

--efn

Excellent answer. Just what I was looking for.

Thank you for the rating, comment, and tip.