A “wash sale” occurs when you sell a position at a loss within 30 days of its original purchase or you buy the same position back within thirty days of the sell. According to Investopedia:
The Wash-Sale rule was established to disallow a loss deduction of a security sold, if within 30 days of the date of the sale an investor buys substantially identical stock or securities, or purchases options on the underlying security. The wash-sale period is actually 61 days, consisting of the 30 days before to 30 days after the date of sale.
A “partial wash sale” occurs when you buy back a portion of the original position within 30 days of the sale. Typically, partial wash sales are caused accidentally by automatic reinvested dividends.
You’ll know you have wash sale when you see a “W” in the comment field on the Cost Basis Reconciliation Report. To update PortfolioCenter, you must adjust both
- the cost basis of the new lot by the amount of the loss and
- the date of the new trade lot to prevent a short-term loss later.
In PortfolioCenter (at this point) accounting for wash sales is challenging, except in the simplest of cases. By simple, I mean one original buy, one complete sell and one buy back. If you sell multiple trade lots and partially buy them back, clear your schedule before you attempt the adjustments. It’s going to take some time to update PortfolioCenter.
To learn how to handle wash sales, watch the helpful video on Schwabpt.com.
However, if your broker is the System of Record, you can ignore wash sales in PortfolioCenter, and rely instead on the broker’s tax reports. In this case, I recommend adding a disclaimer to any tax reports you run from PortfolioCenter that alerts your clients that PortfoiloCenter cost basis is an estimate only and does not account for wash sales.