How does the wash sale rule apply when trades in quick succession net positive?

Question

This is probably best illustrated with an example:

Day 1: I buy 10x AAPL for $1000
Day 2: I sell 10x AAPL for $2000 ($1k gain)
Day 3: I buy 10x AAPL for $1000
Day 4: I sell 10x AAPL for $500 ($500 loss)
Day 5: I buy call LEAPS on AAPL and hold until next year

Come tax season next year, will I owe taxes on $1000 or $500?  In other words, does the $500 wash sale get matched with my previous trade (which gets settled this year) or with the LEAPS (which won't be settled until the year I sell)?

Bob Baerker · Accepted Answer

A LEAP can be a put or a call. I'm going to assume that you mean that your Day 5 transaction is a call LEAP. If so, it is a 'substantially identical' security and therefore it triggers a wash sale violation. You will have to pay taxes on $1,000 since the $500 loss must be deferred.

Correct answer by Bob Baerker on July 27, 2021

How does the wash sale rule apply when trades in quick succession net positive?

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