I'm curious to know the tax implications of the following scenario
regarding the sale and pruchase of stocks:

Stock A is sold for a $500 loss. Stock B is sold for a $500 gain.
Stock B is immediately purchased back. Can I wipe out stock B's gain
for income tax purposes, using Stock A, and immediately repurchase
stock B with out violating any tax rules?

I understand the concept of wash sales regarding the claiming of a
loss and repurchase of the same stock within a 30 day window before or
after the sale. However, since wash sales deal with the claiming of a
loss on the same stock, it shouldn't apply in this situation.

Howdy espressoky-ga,

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This Fool.com article talks of wash sales and (more or less) the angle to
which you speak, that is if the opposite is applicable.
http://www.fool.com/taxes/2000/taxes001006.htm

"Under the wash sale rules, if you sell stock for a loss and buy it back
within the 30-day period before or after the loss-sale date, the loss
cannot be immediately claimed for tax purposes."

But, you are right in that you are not proposing to do a wash sale, as
you not going to buy Stock A back, but rather you are disposing of it
with no repurchase of Stock A.

The above article continues later on with:

"One final note: while the wash sale provisions work on shares that you
sell for a loss, there are no corresponding provisions for stock that you
sell at a gain and then immediately repurchase."

The Internal Revenue Service (IRS) requires that Stock A and Stock B are
not "substantially identical," otherwise the IRS might consider at least
some part of the trade to be a wash sale.
http://www.irs.gov/pub/irs-pdf/p550.pdf

"In determining whether stock or securities are substantially identical,
you must consider all the facts and circumstances in your particular case.
Ordinarily stocks and securities of one corporation are not considered
substantially identical to stocks or securities of another corporation.
However, they may be substantially identical in some cases. For example,
in a reorganization, the stocks and securities of the predecessor and
successor corporations may be substantially identical.
...
For example, preferred stock is substantially identical to the common
stock if the preferred stock:

1. Is convertible into common stock,
2. Has the same voting rights as the common stock,
3. Is subject to the same dividend restrictions,
4. Trades at prices that do not vary significantly from the conversion
ratio, and
5. Is unrestricted as to convertibility."

Other than the possible caveat above, I agree that the "wash sale"
provisions don't apply in your case.  There are short term and long
term holding considerations that may have to be taken into account,
but with the assumption that both Stock A and Stock B are of the
same term of holding, then the $500 loss on the sale of Stock A will
offset the $500 gain on the sale of Stock B.

As pointed out in the Fool.com article, there are no corresponding
provisions for the immediate repurchase of Stock B after selling it
for a gain.

If you need any clarification, please feel free to ask.


Search strategy:

Google search on: "wash sale" gain
://www.google.com/search?q=%22wash+sale%22+gain

Looking Forward, denco-ga - Google Answers Researcher

Excellent Answer.

Much thanks for the 5 star rating and kind comment, espressoky-ga.

Looking Forward, denco-ga - Google Answers Researcher