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Wash Sales
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Advisor Rebalancing allows you to track and prevent wash sales for all accounts with the same Wash Sale Group ID. Under wash sale rules, if you sell securities at a loss and purchase substantially identical securities within 30 days before or after the sale, you cannot claim the loss for tax purposes.
Below is a summary of how Advisor Rebalancing treats wash sales and how you can prevent wash sales in accounts where they are not desired.
The following list are some important considerations when to keep in mind when using Advisor Rebalancing to prevent wash sales:
Liquidation: When you completely liquidate a security, Advisor Rebalancing will not prevent you from selling the position due to a wash sale restriction.
Wash Buy Positions: If you have a wash buy position and hold a security at a loss and reinvest, that security is prohibited from being bought and can inhibit a tax loss harvest rebalance.
Deleting Orders: If you delete an order, Advisor Rebalancing will delete all associated recent trades for the same date and ticker for the account, which will affect wash sale monitoring.
Dividend Reinvestments: Any buys made as the result of dividend reinvestments are tracked and you will be warned if these transactions trigger wash sales.
The first step to avoiding wash sales is to make sure you've set the appropriate account-level settings in those accounts where you do not want wash sales. You can change the account settings of an account individually, or use an account template to establish a set of account settings for different types of accounts.
The Allow Violation of Wash Sale Rule setting is an account-level setting that applies to taxable accounts and allows you to determine how you'd like wash sales handled in the account.
This setting allows you to establish whether you'd like Advisor Rebalancing to adhere to the wash sale rule on an account-by-account basis.
The Wash Sale Group ID setting is an account-level setting which allows you to establish a relationship for different accounts for the purpose of preventing wash sales. For example, if John Smith has three accounts, all three accounts can be set up with the same Wash Sale Group ID to prevent wash sales among all accounts.
If you reinvest on a regular basis, you'll run into wash sale or wash buy restrictions. Avoid wash sales by using the Wash Sale Group ID for all of the client's accounts, including any tax-deferred accounts.
Set the Wash Sale Group ID with any unique alphanumeric combination that makes sense to you. Transactions for all accounts with the same Wash Sale Group ID are considered when determining which transactions will cause a violation of the wash sale rule. Accounts in the same Rebalancing Group are not considered part of a wash sale group unless they have all been set with the same Wash Sale Group ID.
The Recent Sells & Buys area allows you to view applicable buys and sells made in the past 30 days in Advisor Rebalancing, so you can manually view if a trade might potentially violate the wash sale rule. If your firm only uses Advisor Rebalancing, the trades shown come from recently logged trades on the Orders page. If your firm uses Advisor View and Advisor Rebalancing, the trades shown also include additional orders, if any, from Advisor View.
This area also lets you manually add trades within a 30 day period to prevent wash sale rules from being violated. For example, if you completed a trade outside of Advisor Rebalancing, you can manually add the trade here so that Advisor Rebalancing knows to consider that trade in the future as a possible wash sale.
With the Allow Violation of Wash Sale Rule setting set to No, a security appearing on this list will be blocked from a subsequent trade that would violate the wash sale rule.
You can use the Delete or Delete All links to remove recent trades. Keep in mind this may produce recommended trades that violate the wash sale rule.
When creating a directed trade, you can choose the trade rules you'd like to follow or ignore for that particular directed trade. This includes the option to either adhere to or ignore the account's Allow Violation of Wash Sale Rule setting.
In some cases, you want an account to violate the wash sale rule. In other cases, you may want to violate the rule temporarily. To do this, you can do one of the following:
Change the Allow Violation of Wash Sale Rule setting in the account to Yes. This will allow all trades that violate the wash sale rule.
Create a directed trade and click the Show Trade Rules link.
Under Allow violation of the wash sale rule, choose Yes.
The Include dividend reinvestments for wash sale restrictions check box is available under Rebalance Settings on the System Settings page.
When selected, this option adds dividend reinvestments to the list of transactions Advisor Rebalancing compares when determining which transactions violate the wash sale rule. For more information, see System Settings: Rebalance Settings.
