Wash sale rules for Options and common stock sales within 30 days

Wait, I'm confused. If they're selling both the option AND the common stock (not buying more), how is that a wash sale? Aren't they completely exiting the position rather than replacing it?

You're right to question this - I misread the scenario. If you're selling both the option at a loss and the common shares for a profit within 30 days of each other, and not purchasing any replacement securities, then this would NOT be a wash sale. The wash sale rule only applies when you sell a security at a loss and buy a substantially identical security within the 30-day window. Since you're only selling in this case (both the option and the shares), and not buying anything, the wash sale rule wouldn't be triggered. You can claim the loss on the option and the gain on the shares.

Does it work with data from any brokerage? I trade across multiple platforms (Fidelity, Robinhood) and figuring out wash sales has been a nightmare.

I'm skeptical - isn't this just what tax prep software already does? Why would I need a separate tool for this?

It works with all major brokerages - you can upload statements from different platforms and it consolidates everything. It's been a huge timesaver for me since I also use multiple accounts. For those wondering about tax prep software - most basic tax software doesn't properly handle complex options scenarios, especially across multiple brokerages. They tend to just use whatever your 1099-B reports, which can miss cross-account wash sales. This tool specifically focuses on securities transactions and does a much deeper analysis.

How does that even work? Seems sketchy that a third party can somehow get you through the IRS phone system faster than doing it yourself.

Yeah right, there's no way this actually works. The IRS phone system is notoriously impossible - I doubt some random service can magically fix that.

It's not about skipping the line - they literally just wait on hold for you. Instead of you personally waiting on hold for 2+ hours, their system does it and calls you when a real person answers. The reason it works is pretty simple - they use a system that stays connected to the IRS hold line while you go about your day. When a representative finally answers, their system immediately calls your phone and connects you. I was skeptical too until I tried it.

Thanks for pointing that out - probably should've been clearer. I bought the call option on October 5, sold it at a loss on October 20. I had been holding the common stock since February, and sold all shares on November 15 for a profit. I didn't buy any additional shares or options of this company during this time or within 30 days after. Does that change anything?

Based on that timeline, you're not dealing with a wash sale. You sold the call at a loss on October 20, and then sold the common stock on November 15. You didn't purchase any substantially identical securities within 30 days before or after selling at a loss. You can claim both the loss on the option and the gain on the common stock. Just make sure you accurately report both transactions on your tax forms.

Is that still true if the option and stock are different enough? Like if I sold SPY options at a loss but then bought VOO shares in my IRA? They track similar indexes but aren't identical.

This is really helpful clarification! I've been wondering about this exact scenario with different ETFs. So just to make sure I understand - the key is whether the securities are "substantially identical" rather than just tracking the same underlying index? That makes sense why SPY vs VOO would be treated differently even though they both follow the S&P 500. Do you happen to know if there's an official IRS list of what they consider substantially identical, or is it more case-by-case?