PA State Tax Wash Sales & Updated Cost Basis (Philadelphia: real estate, condo)

[mitchmiller9]

This is my first full year in PA where I will be paying taxes. I have a couple wash sales. Fidelity is my brokerage. Fidelity shows all disallowed losses from wash sales, so it is easy to track losses that can be entered on my PA tax return, but not on my Federal return. I use TurboTax to do my taxes, so it handles all the details for the Federal return. However, I doubt TurboTax will be able to properly track the updated cost basis of shares that I sold for a loss, then bought back within 30 days (wash sales). For tax year 2023, I'll have two wash sales for some shares of a large holding I own of the same stock.

So, I'm wondering how others handle tracking the updated cost basis for PA state tax purposes. Do you use any free software to help?

I'm surprised PA diverges from the Federal tax rules because I'm sure there is massive fraud where PA is losing a lot of tax revenue. The enforcement required to ensure compliance with state laws has to be cost prohibitive.

[Wells5]

For PA income tax purposes, you can't deduct capital losses from capital gains to arrive at a net gain or loss as you can for the federal return. So wash sale rules don't apply.

[Wells5]

I need to correct my previous post. You can deduct capital losses from capital gains on PA schedule D but if there is a net loss, you can't deduct it on the PA 40.

[mitchmiller9]

Originally Posted by Wells5

I need to correct my previous post. You can deduct capital losses from capital gains on PA schedule D but if there is a net loss, you can't deduct it on the PA 40.

That's how I understand it. Capital losses can only offset capital gains of a similar type security where BOTH were realized in the current tax year. Excess capital losses can NOT be deducted from income. The Feds allow up to $3000 of excess losses to be deducted from income each tax year. The Feds also allow carryover losses. PA does not. Capital gains distributed from Mutual Funds are treated as dividends, so they cannot be offset by other capital losses.

The big hassle is that I sometimes sell call options on shares I own and sometimes the shares are called away (sold). I often rebuy them within a few days. Also, as happened this week, one of my stocks jumped nearly 9% on no news, just an SA article. So, I sold a big chunk of shares near the daily high and rebought them two days later for a forty cent per share gain (significant where the stock trades at $7.65/share). Tracking all this is no problem with the Feds as Fidelity keeps track of gains/losses/cost basis, but this will be a hassle to manually keep track of everything for the state of PA.

[Wells5]

Perhaps for this one time, hire an accounting professional to do your taxes. But be aware that many CPAs don't really know how to deal with complex investment issues.



The Philadelphia School District taxes most unearned income at 3.79% flat. Short term capital gains are subject to the tax but not long term cap gains. (I can't figure that one out.) The Philly S.D. is the only taxing body in PA other than the state itself that can tax unearned income. Maybe you should move to the suburbs?



https://www.phila.gov/media/20230123...Tax-return.pdf

[mitchmiller9]

LOL The suburbs are way too expensive for me. I don't have to own a car living in Center City and real estate is way cheaper as I live in a studio condo that I bought in an older high rise (built 1956 - same age as me).

Well I found a Turbo Tax "expert" responding to my very question on their site. The expert claims (of course with a disclaimer) that Turbo Tax handles everything, implying adjusting the cost basis.

Yes. TurboTax adjusts for Pennsylvania wash sale rules and includes disallowed losses. You do not have to make any basis adjustments for wash sales in the PA section.

Out of an abundance of caution, you should always check to see whether your transactions are being reported properly.

I'll just put this on hold until I do my taxes. Perhaps I really don't have to do any extra bookkeeping. But Fidelity would need to be reporting any adjustment to a cost basis as the result of a wash sale, so TurboTax can undo it for the state return. At least Fidelity pairs trades on a FIFO basis by default.