Employee Stock Purchase and Wash Sales

[Springfield]

I own company stock, purchased through a brokerage. The value has dropped in half, but I still believe in the company and would like to essentially maintain my position.

Can I sell the stock in December 2007 and purchase that same amount through the Employee Stock Purchase Plan (next plan period runs from 1 Jan to 30 June, 2008) and still book the tax loss without running into wash sale problems? Is the purchase date for the ESPP the first or last day of the period?

If I can't sell in December 2007 without facing the wash sale, then can I do this in February 2008? Thanks

[Bees Knees]

If you are using after tax dollars to buy and sell stock, wash sale rules apply. You have to wait more than 30 days after the sale to re-purchase the stock, or loss is disallowed.

If this is pre-tax qualified incentive stock options, you would cause yourself to pay ordinary income tax on the sale and re-purchase.

[Springfield]

Regarding the Employee Stock Purchase Plan, is the purchase date then the beginning of the purchase period (1 Jan 08 - 30 Jun 08), or is there a particular rule covering this situation?

[Bees Knees]

Are you using after tax dollars to purchase your employer's stock?

[Springfield]

Yes, all money is after tax.

[Bees Knees]

Then the purchase date could be every pay period. For example, say they withhold $200 per pay period from your pay check. On one pay period, that $200 buys 3.78 shares of your employer’s stock. On the next pay period, another $200 buys 4.18 shares of stock. The next, 4.07 shares, and so on.

Each share or fraction of a share will have a different holding period, the date your withheld pay actually purchased shares of stock.

Calculation of your basis and holding period thus becomes very complicated. You will need to know these details to determine long-term vs. short-term gain or loss when you eventually sell some or all of your stock.