Wash sale rule

[teejayevans]

I know you can not sell at a lost, then buy back in less than 30 days, then report the loss.

But what if you buy more first (say in a IRA), then sell the same security in your taxable account the next day?
In other words, does the 30 day window extend backward in time, so really it's a 60 day window?

 

[MichaelB]

In other words, does the 30 day window extend backward in time, so really it's a 60 day window?

Sorry, the 30 day window extends both ways.

 

[teejayevans]

Sorry, the 30 day window extends both ways.

So why don't we call it a 60 day window? Oh wait this is tax law, never mind.

 

[Fermion]

I know you can not sell at a lost, then buy back in less than 30 days, then report the loss.

But what if you buy more first (say in a IRA), then sell the same security in your taxable account the next day?
In other words, does the 30 day window extend backward in time, so really it's a 60 day window?

DANGER!

Do NOT buy the same security in an IRA that you sold for a loss in your taxable account. You lose the tax deduction FOREVER...gone, poof!

You need to be very careful with this. Either wait 31 days before taking the loss in taxable after buying in the IRA or wait 31 days to buy in the IRA after taking the loss in taxable.

 

[teejayevans]

DANGER!

Do NOT buy the same security in an IRA that you sold for a loss in your taxable account. You lose the tax deduction FOREVER...gone, poof!

You need to be very careful with this. Either wait 31 days before taking the loss in taxable after buying in the IRA or wait 31 days to buy in the IRA after taking the loss in taxable.

Thanks, glad I asked

 

[rbmrtn]

Fairmark has a pretty good page on wash sales

The Wash Sale Rule

 

[ERD50]

I do understand that transactions in an IRA affect the wash sale rule for your taxable account. But as a practical matter, would the IRS ever detect this? Not that I'm suggesting that anyone test this, but really, how would they find out?

Even in an audit, unless it was a full-blown check every line and research everything for every account, how would it ever come to light? That would be a lot of resources to throw at what is probably a pretty average looking tax return. And would there be a statute of limitations? How long do I need to keep my IRA transactions, since they aren't even reported on my tax forms?

If I realized after-the-fact that I did this, I think I'd let it slide and take my chances, and make sure I never did it again. Even if it was detected, I think the penalties might be easier to take than the work to correct it, even if there was a single digit chance of them catching it, and I think the chances are slight indeed. Unless someone has evidence to the contrary.

-ERD50

 

[NW-Bound]

The wash sale rule is indeed difficult to enforce. The law said one could not buy the same equity or a "substantially identical" one. That latter is not well defined. In a sector or industry, there are often several stocks that move in unison. Similarly, there are several MFs or ETFs that move together. So, it is not a clear-cut criterion.

My guess is that unless the buy/sell orders are in the millions of dollars, the IRS does not care to check it. This does not mean one should intentionally violate the law, of course.

 

[pb4uski]

I agree that the likelihood of detection is very low. But if they found it and believed it was done intentionally, it is likely they would prosecute to the full extent of the law to set an example. I would not want to be on the end of that stick.

 

[travelover]

The wash sale rule is indeed difficult to enforce. The law said one could not buy the same equity or a "substantially identical" one. That latter is not well defined. In a sector or industry, there are often several stocks that move in unison. Similarly, there are several MFs or ETFs that move together. So, it is not a clear-cut criterion.

My guess is that unless the buy/sell orders are in the millions of dollars, the IRS does not care to check it. This does not mean one should intentionally violate the law, of course.

I agree. I recall a thread at Bogleheads where they were wringing their hands over selling a Vanguard S&P 500 fund and buying some replacement Vanguard funds that approximate the S&P 500 (or something similar). Of course the FUD mongers were predicting the IRS would swoop down and send the guy to prison for a wash sale.

 

[teejayevans]

I guess they don't ask VG, FIDO, etc to police it and report it, surely they would know IF done under their watch, no way if done across brokerages

 

[45th Birthday]

Wash sale rules are extremely difficult to interpret/enforce. Even many brokerage firms get the basics wrong. I had a corrected 1099 this year that was issued to mark a transaction as a wash sale. It was an error. After pointing this out, and a few other errors that existed in the original 1099, I finally received a correct corrected 1099. This from a very large and well-known full service firm.

 

[Texas Proud]

I think there is some case law on this and FWIR, it has to be VERY close to get you caught... IOW, buying another company will not trigger it even if they track each other closely....

I do think that buying the S&P 500 from a different company would...


As mentioned, if done across brokers I do not think anybody would ever find it... I bet that even in the same broker they might not... there is no requirement to keep track of basis in an IRA... (as far as I know)....


Funny thing is that if you have a bond fund, you will always have this problem if you reinvest... they are buying new shares at the end of every month.... I was having this happen to me... the loss kept getting bigger and bigger...

 

[pb4uski]

I think there is some case law on this and FWIR, it has to be VERY close to get you caught... IOW, buying another company will not trigger it even if they track each other closely....

I do think that buying the S&P 500 from a different company would...


As mentioned, if done across brokers I do not think anybody would ever find it... I bet that even in the same broker they might not... there is no requirement to keep track of basis in an IRA... (as far as I know)....


Funny thing is that if you have a bond fund, you will always have this problem if you reinvest... they are buying new shares at the end of every month.... I was having this happen to me... the loss kept getting bigger and bigger...

+1 to first three. I hadn't thought of the reinvested dividend complication causing a wash sale. Yuk!!!