IRS brochure covers ACA tax reporting

Common questions on exceptions, premium tax credits, other issues are addressed in Publication 5187

IRS has a new publication, Publication 5187, that addresses many of the common questions I receive about tax reporting for the Affordable Care Act. A simple Internet search will allow you to see this publication.

The IRS Form 1040 has a new line on page 2, line 61, which is used to indicate that you have minimum essential coverage (MEC) for the 2014 year to avoid any shared responsibility payment on your 2014 tax return.

A new Form 1095 will report your health coverage. Form 1095-A will be issued by the Health Insurance Marketplace (called an exchange in New Mexico) to be used to claim a premium tax credit, if applicable.

Beginning with the 2015 tax year, employers should provide you with a Form 1095-B or 1095-C (large employers) showing who is covered by an MEC plan. Names and Social Security numbers will be provided to IRS to show which individuals and dependents do have MEC.

Individuals who claim an exemption from the MEC requirement may need to include Form 8965 with their return to claim the exemption. Certain exemptions must be granted by the exchange and the exchange may then provide you with an exemption certificate number.

The instructions to Form 8965 (also available on the Internet) have a table that indicates how to report specific exemption claims.

Finally, Form 8962 is used to claim a premium credit. This credit is claimed in the payment section of the Form 1040, which means it can be received as a refund even if it exceeds your total tax liability.

Q: As the stock market showed some life last year, I started moving more of my investments into the market. I have four trades that were at a loss and seem to meet the definition of a “wash” sale. My question is how closely the IRS bothers to track wash sales. My numbers aren’t big but I had about $6,000 of losses that could be used to offset $54,000 of gains and I’m wondering how risky it would be to claim the losses.

I think it’s hard to say how closely the IRS “tracks” wash sales. But the tax law is fairly clear, with the exclusion of certain unusual fact patterns, about the treatment of wash sales. You do have to follow the law, whether the IRS would know of your facts or not. Also, beginning

in 2011, broker reporting of stock transactions includes identification of sales the broker classifies as wash sales.

A wash sale occurs when a stock or security is sold at a loss and substantially identical stock or securities are purchased within 30 days. So, including the trade date, you need to examine 61 days (trade date and 30 days before and after that date) to determine if a wash sale exists.

Any loss that is disallowed under this rule is added to the cost basis of the replacement stock, so the end result is simply to defer the loss until you are out of the position.

There are unsettled issues with the wash-sale rules, such as what is meant by “substantially identical” stock or securities. But if you sold Microsoft and purchased Microsoft, the substantially identical issue is settled.

It’s often mutual fund shares that create a bigger issue because two different funds could have very similar investment objectives, so they may or may not be considered substantially identical. Bonds of the same issuer but with different maturities could also create uncertainty.

In any event, if you sold a stock at a loss and you definitely purchased replacement shares of that same stock within 30 days before or after that sale, you have a wash sale and the law is clear that the loss is not allowed. So I would not worry about IRS tracking and just report the sale consistent with the law.

One final point — buying stock and selling at a loss within 30 days is not a wash sale if the purchase is not a replacement for the sold shares. For example, buying 100 shares on January 7 and selling those shares at a loss on January 14 does not create a wash sale because there was no replacement of the shares sold.