Submitted By: Tom
Answered: October 21, 2014 8:30 am

If I sell stock and then buy other stock in the same industry in my brokerage account, what are the tax consequences?

The starting point is determining whether you have a gain or loss. If you have a gain, your other buying or selling activities have no impact on reporting the gain. If you have a loss and buy substantially identical securities within 30 days before or after the date of the sale, you can’t immediately recognize the loss (you adjust the basis of the new securities so that the tax benefit from the loss is taken when the new securities are eventually sold). (This is called the wash sale rule.) The question in the case of a loss is the meaning of substantially identical securities. If you sell Apple stock and buy Microsoft stock, they likely aren’t treated as substantially identical even though they may have similar product offerings. The fact that stock in different companies falls within the same industry doesn’t make their stock substantially identical. Talk with a financial advisor about whether proposed trades will trigger the wash sale rule.

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Tax Glossary

Accrual method of accounting

A business method of accounting requiring income to be reported when earned and expenses to be deducted when incurred. However, deductions generally may not be claimed until economic performance has occurred.

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