You still end up owning the exact same number of shares but get to deduct the loss based on your higher cost. Socialize losses, privatize profits.
Not exactly accurate. You are not “socializing losses and privatizing profits“. You are taxed on any net gain. In deducting the loss, you are reducing the effective basis, should you pick up the same stock issue after wash date. With the reduced basis, you have the potential of a larger gain that you will be taxed at.
For example:
Buy stock A 1000sh @ $11/sh – cost $500
Stock A tanks, to $0.50/sh – current value $500, paid $11,000
Sell A, take loss of $10,500.
Wait 31 days.
Buy back 1000 sh of A at $0.50 – cost $500.
Stock A goes back to $11/sh and you sell – $11,000
After selling, you have a gain of $10,500 – which is precisely offset by your loss of the same amount. Net taxable for the whole thing is $0 – which would be the same result as if you just held the stock over the whole period and sold when it got back to $11/sh.
