Clarification about wash sale rule

[SecondAttempt]

I think I know the answer to my question but wanted to confirm with the smart folks here.

I mentioned that I have some pretty big losses in POTX but am thinking of buying more. If I sell POTX in my taxable portfolio to generate a tax loss and buy it back the same day in my IRA does this violate the wash sale rule?

I think it does not but please correct me if I am wrong.

 

[njhowie]

I believe you are correct. Your taxable and IRA are two different registrations, so effectively two different entities.

If, for example, you had a taxable account at Vanguard and another at Fidelity both with the same registration and sold in one and bought in the other, that would be a wash sale violation.

 

[VanWinkle]

I think I know the answer to my question but wanted to confirm with the smart folks here.

I mentioned that I have some pretty big losses in POTX but am thinking of buying more. If I sell POTX in my taxable portfolio to generate a tax loss and buy it back the same day in my IRA does this violate the wash sale rule?

I think it does not but please correct me if I am wrong.

You can buy it back in 31 days, but a purchase of an identical security
in less than 30 days will cause the original sale and tax loss to be a wash. It doesn't matter the location of the purchase, only the ownership by the taxpayer.

 

[PaunchyPirate]

I believe you are correct. Your taxable and IRA are two different registrations, so effectively two different entities.

If, for example, you had a taxable account at Vanguard and another at Fidelity both with the same registration and sold in one and bought in the other, that would be a wash sale violation.

I don't believe this is correct. I've always read that these rules apply across all of your brokerage account holdings -- taxable or IRA.

OP, based on what I've read, your plan would be in violation and your loss could not be claimed.

 

[njhowie]

I don't believe this is correct. I've always read that these rules apply across all of your brokerage account holdings -- taxable or IRA.

OP, based on what I've read, your plan would be in violation and your loss could not be claimed.

I now see that you are correct. OP - you can't claim the loss in the taxable account.


https://www.investopedia.com/articles/retirement/09/ira-wash-sale-rule.asp

Does the Rule Apply to IRAs?

In 2008, the IRS issued "Revenue Ruling 2008-5," in which it addressed the question of whether the wash-sale rules apply to IRAs. In the ruling, the IRS explained that when shares are sold in a non-retirement account and substantially identical shares are purchased in an IRA within 30 days, the investor cannot claim tax losses for the sale, and the basis in the individual's IRA is not increased.


Example: Claiming Tax Losses in an IRA

Suppose that you own 100 shares of YYY stock with a basis of $1,000 in your brokerage account. You sell the 100 shares of YYY at a loss, for $400 on Oct. 10. On Nov. 1, you buy 100 shares of YYY stock in your IRA account for $800.

According to Revenue Ruling 2008-5, you cannot deduct the $600 loss on the sale, and you cannot increase the basis of the stock purchased in your IRA by the $200 difference between the sell and repurchase.


IRS "Revenue Ruling 2008-5" prevents investors from using the cloak of a tax-deferred account type such as an IRA to circumvent the wash-sale rule. It applies to traditional and Roth IRAs, regardless of whether the IRAs are held at different financial institutions.

 

[bingybear]

You can buy it back in 31 days, but a purchase of an identical security
in less than 30 days will cause the original sale and tax loss to be a wash. It doesn't matter the location of the purchase, only the ownership by the taxpayer.

this would include spouses too.

 

[MichaelB]

Selling for a loss in one account and buying in another within 30 days before / after is a violation of the wash rule. Taxable vs IRA makes no difference. The rule applies to all accounts owned by the taxpayer.

From Fidelity https://www.fidelity.com/learning-center/personal-finance/wash-sales-rules-tax

It's important to note that you cannot get around the wash-sale rule by selling an investment at a loss in a taxable account, and then buying it back in a tax-advantaged account.

 

[captain3d]

Best you can do is buy a slightly different etf or individual stocks from the ETF for 30 days then go back in

 

[SecondAttempt]

Thanks to everyone for saving me money on penalties!

 

[NW-Bound]

Note that the IRS ruling on this matter was dated 2008. Prior to this, people thought that it was kosher to bypass the wash-sale rule using an IRA and an after-tax account. I myself did that once or twice.

Nowadays, if both your tax-deferred and after-tax accounts are with the same brokerage, your broker computer may detect a wash-sale violation and flag it. There's no penalty, only no tax-loss write-off for you.

 

[SecondAttempt]

Note that the IRS ruling on this matter was dated 2008. Prior to this, people thought that it was kosher to bypass the wash-sale rule using an IRA and an after-tax account. I myself did that once or twice.

Nowadays, if both your tax-deferred and after-tax accounts are with the same brokerage, your broker computer may detect a wash-sale violation and flag it. There's no penalty, only no tax-loss write-off for you.

Thanks. I'll need to figure out what to do. T. Rowe Price just recently released projected year end distributions on their funds and it looks like I will be getting some hefty taxable distributions. I am looking for ways to offset them. POTX is one of my only non-IRA losers so it is one of my only options. I may sell and just wait the 30 days or maybe I will double up on it in my IRA now and sell in my taxable account later this year. I don't think there is a problem with that.

 

[HarveyS]

Sell the fund before the distribution record date. Buy it back after the record date within 30 days. No gains to offset since you will not get the distribution. And you keep your original basis due to wash-sale rules.

 

[SecondAttempt]

Sell the fund before the distribution record date. Buy it back after the record date within 30 days. No gains to offset since you will not get the distribution. And you keep your original basis due to wash-sale rules.

Perhaps. But the funds are up 20%+ since I bought them so I'd pay hefty taxes anyway. And most of the distributions wil be long term while much of my sale would be short term gains so I think best just to take the hit and possibly figure out how to offset with my loser - by waiting 30 days.