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Would this qualify as substantially different?
Old 01-15-2015, 10:15 AM   #1
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Would this qualify as substantially different?

I have been trading some Seadrill in my IRA. Small amounts, about 1000 share lots.

If I were to buy some Seadrill Partners (different symbol...somewhat complicated financing company offshoot which Seadrill still owns part) in a taxable account, would that be substantially different for wash sale purposes?

Seadrill trades under SDRL and Seadrill Partners trades under SDLP.

Seadrill doesn't pay a dividend but SDLP still does (maybe unsustainable, but about 15% right now with everything contracted out to 2017).

Since they have different symbols and one pays dividend but other doesn't, it sounds substantially different to me?
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Old 01-15-2015, 10:26 AM   #2
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Since there is no tax liability in an IRA, why does this come under the wash sale rules? You can't claim a taxable loss and aren't liable for any gains while the money stays in the IRA.
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Old 01-15-2015, 10:33 AM   #3
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Since there is no tax liability in an IRA, why does this come under the wash sale rules? You can't claim a taxable loss and aren't liable for any gains while the money stays in the IRA.
If I were to buy 100 shares of Google in my IRA and then a couple days later buy 100 shares in taxable, then I sell the 100 shares in taxable for a $1000 loss a few days after that, I can't deduct the loss because it has been transferred and lost forever in the IRA. It is why you want to make sure securities are "substantially different" in the eyes of the IRS.

It seems like these would be, since they have different symbols and risk factors even though there is cross ownership from SDRL to SDLP at the corporate level.
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Old 01-15-2015, 10:43 AM   #4
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I think it's a coin flip.
You might (and probably would) be just fine.
But you also might be audited and have quite a hassle.

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The IRS does not have a clear definition of substantially identical; it is determined by all the facts and circumstances in a particular case. Two share classes of the same fund, such as a mutual fund and a corresponding ETF, are probably substantially identical. There is no ruling on whether two funds operated by different companies tracking the same index are substantially identical; tax experts have differing opinions.
Wash sale - Bogleheads
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Old 01-15-2015, 10:47 AM   #5
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Of course this is only an issue if I buy SDLP then sell it for a loss or sell it within 30 days of a previous trade in my IRA.

It is very attractive here at $13.80 with rigs contracted out to 2017. Allows 2 years for some recovery in oil prices.

It could very easily be $25 to $30 in 2016 if oil goes back to $70-$80.
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Old 01-15-2015, 01:30 PM   #6
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Quote:
Originally Posted by Fermion View Post
If I were to buy 100 shares of Google in my IRA and then a couple days later buy 100 shares in taxable, then I sell the 100 shares in taxable for a $1000 loss a few days after that, I can't deduct the loss because it has been transferred and lost forever in the IRA. It is why you want to make sure securities are "substantially different" in the eyes of the IRS.

It seems like these would be, since they have different symbols and risk factors even though there is cross ownership from SDRL to SDLP at the corporate level.
I'm not sure that your contrived example would be a wash sale because you bought the Google in your IRA ahead of buying the Google in your taxable account that was sold. Usually a wash sale issue arises where one sells shares in taxable for a loss and buys shares in the IRA that puts you in the same economic position as before the transactions.

If your example was that you had held the Google in your taxable account then bought more Google in your IRA and then sold the Google in your taxable account for a loss, I agree there would be a wash sale issue.

In any event while I haven't researched the tickers you mention, the fact that the tickers are different, dividends are different and it sounds like capital structures are different would suggest they are sufficiently dissimilar, but that there may be a bit of tax risk associated with the proposed transactions.
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Old 01-20-2015, 12:17 PM   #7
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Quote:
Originally Posted by Fermion View Post
If I were to buy 100 shares of Google in my IRA and then a couple days later buy 100 shares in taxable, then I sell the 100 shares in taxable for a $1000 loss a few days after that, I can't deduct the loss because it has been transferred and lost forever in the IRA. It is why you want to make sure securities are "substantially different" in the eyes of the IRS.

It seems like these would be, since they have different symbols and risk factors even though there is cross ownership from SDRL to SDLP at the corporate level.
I really don't understand your scenario in this post. The part about the loss being "lost forever in the IRA" is what I am having trouble understanding.

You bought 100 shares in the IRA.

You bought 100 shares in taxable.
You sold 100 shares in taxable within 30 days of the buy for a $1000 loss.

Where does that "lost forever in the IRA" part come from?
What happened in the IRA has no connection to what happened in the taxable account.

Now, the trades in the taxable account constitute a wash sale and you don't get to claim the loss, but if you buy the shares back (in the taxable account), you get to step up the basis of those shares by the amount of the loss that was disallowed. It doesn't matter what happened in the IRA.


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Quote:
Originally Posted by Fermion View Post
I have been trading some Seadrill in my IRA. Small amounts, about 1000 share lots.

If I were to buy some Seadrill Partners (different symbol...somewhat complicated financing company offshoot which Seadrill still owns part) in a taxable account, would that be substantially different for wash sale purposes?
I think you are really asking "Is this a wash sale?" Right?
The answer is no, not a wash sale -- for two reasons: 1) A transaction in an IRA can't result in a wash sale, and 2) even if a transaction in an IRA could result in a wash sale, in this case it would not because the symbols are different.

There was a thread in December with a similar (but different) scenario that starts here:
Annual RMD Amounts

I am not an account, so this is not tax advice.
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Old 01-20-2015, 12:56 PM   #8
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Fermion's example of Google in IRA and taxable accounts is a wash sale, and a killer one.


A wash sale can occur when shares are bought within 30 days before or after a sale with a taxable loss. On top of that, there are no provisions for separating taxable and IRA accounts. So buying shares in an IRA and then selling the same shares in a taxable account at a loss within 30 days is a wash sale. The loss is disallowed, the cost basis transfers to the IRA shares, and there it dies, because no one cares what the IRA cost basis is. You never get the loss on your taxes.


I'd be happy enough to consider shares of a company and shares of a partnership that the company owns part of as dissimilar shares.
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Old 01-20-2015, 01:38 PM   #9
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Thanks, Animorph, I stand corrected on the rule. I see how the loss could go to the shares in the IRA.

But I still think these are not "substantially identical investments".
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Old 01-20-2015, 01:48 PM   #10
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The OP wants to buy in a taxable account and sell in his IRA. As long as the OP holds the stock past 30 days from when he sells in his IRA there's no wash sale (IMHO). I'm not sure that he couldn't sell the next day for a loss (or gain) without creating a wash sale issue. The sale in the IRA is not used as a loss on his tax return. I can see where it would be a problem selling in the after tax account and immediately buying in the IRA.
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Old 01-20-2015, 02:48 PM   #11
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I can see where it would be a problem selling in the after tax account and immediately buying in the IRA.
That is what the OP outlined in the "Google" scenario, except that the buy in the IRA occurred just before the buy in the taxable account, and a few days before the sale for a loss in the taxable account, but still well within the 60 day window surrounding the buy in the taxable account.

It is probably a good practice to just avoid these situations.
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Old 01-21-2015, 08:22 AM   #12
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This hand-wringing is popular on the Bogleheads site. I think that you give the IRS too much credit.
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Old 01-21-2015, 10:04 AM   #13
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Fermion's example of Google in IRA and taxable accounts is a wash sale, and a killer one.


A wash sale can occur when shares are bought within 30 days before or after a sale with a taxable loss. On top of that, there are no provisions for separating taxable and IRA accounts. So buying shares in an IRA and then selling the same shares in a taxable account at a loss within 30 days is a wash sale. The loss is disallowed, the cost basis transfers to the IRA shares, and there it dies, because no one cares what the IRA cost basis is. You never get the loss on your taxes.


I'd be happy enough to consider shares of a company and shares of a partnership that the company owns part of as dissimilar shares.
I don't agree that his contrived example is a wash sale.

If he had Google in his taxable account, then bought Google in his IRA and then sold the Google in his taxable account you would be correct.... that would be a wash sale because the purchase of Google in his IRA washes with the sale transaction and brings him back to where he was before the purchase of Google.

But in his scenario he buys Google in the IRA first, then in the taxable account and then executes the sale.

It is easier to see if you attach numbers to the transactions. Let's say the first purchase is for $110, the second for $100 and the sale is at $90. At the end of the day, the basis has to be $110. So if the transaction is purchase in IRA for $110, purchase in taxable for $100 and then sale in taxable for $90, then the $10 loss is allowed as the $110 basis for the shares held is the same as before the wash transactions. OTOH, if the transaction is buy in taxable for $110, buy in IRA for $100 and then sell in taxable for $90, then the allowable loss is only $10 and the other $10 is lost.

YMMV but that is what I think.

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Old 01-21-2015, 12:32 PM   #14
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You seem to be assuming that the $110 purchase in the IRA will have $110 in basis. The purchase in the IRA will have no basis (if only deductible contributions were made to the IRA).
See Publication 590 (2013), Individual Retirement Arrangements (IRAs)
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Old 01-21-2015, 12:46 PM   #15
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It kind of seems as though purchases and sales inside IRA's (and 401/403x plans) happen without a lot of tracking. I have never (to my knowledge) received a 1099-B for a sale inside an IRA.

I might be back to my original "not a wash" opinion. My advice would be don't do this.

If I had this situation and it was an amount that really mattered I would take it to a CPA.
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