Wash sales

[minnow150]

Taxpayer was active buying and selling a petroleum company's stock in 2020, generating $40,000 in short-term losses offset by $36,000 in wash sale disallowances (as per the 1099-B).  In November 2020, the company went through Chapter 11 and his stock was exchanged for warrants to purchase fewer shares at a later date.

In the exchange of the stock for warrants, the basis does not include the $36k of disallowed wash sales.  Since the taxpayer does not have the stock anymore, how can I get Lacerte to recognize the $36k of capital losses?

Thanks.

Mike Gilligan

[PhoebeRoberts · Accepted solution]

Hello, Unit Petroleum!

I'm not sure what you mean by "in the exchange of the stock for warrants, the basis does not include the $36k of disallowed wash sales." The taxpayer's basis is the taxpayer's basis, and there's no special rule for receiving warrants in the bankruptcy process.

I assume you've read Unit's opinons here: http://www.unitcorp.com/pdf/Tax-Treatment-for-Cancelled-Stock-and-New-Warrants.pdf and http://www.unitcorp.com/pdf/FAQUnitCorporationNewEquitandWarrants20.pdf

You get Lacerte to recognize the losses by entering a transaction that shows the number of shares cancelled in bankruptcy, the date of purchase and date of cancellation (9/3/2020) and the actual adjusted basis of those shares. If you have a 1099-B reporting a covered transaction with erroneous basis, enter the 1099-B amount in the basis field, then make an additional entry in the field called "Adjustment to basis if reported incorrectly on Form 1099-B, Box 1e" in the Schedule D section of the Dispositions screen.

[qbteachmt]

Please note this has been started Again, here:

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/wash-sales/01/150357/hi...

It really helps not to keep starting the same topic over and over. Now you have help from the same community in two places. This was identified as Duplicate, to reduce the amount of work from the volunteers, starting from scratch, again.

I will mark the other one, too.