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INDIVIDUAL RETIREMENT ACCOUNTS COME OUT IN THE WASH (SALE)
December 21, 2007
We mentioned the dangers of "wash sales" the other day. The wash sale rules disallow a loss on the sale of stock if you buy shares of the same stock within the thirty day periods before and after the day you sold the loss stock.
Yesterday the IRS said that the wash sale rules also disallow losses on stock when you buy identical replacement shares in an IRA (Rev. Rul. 2008-05).
This makes buying shares of your loser stock in the 61-day wash sale window a worse deal than buying them personally. If you do a wash sale in a personal account, the disallowed loss increases your basis in the purchased shares that triggered the wash sale rules, so you can get the loss eventually. If you trigger the wash sale rules by purchasing through an IRA, you never get the benefit of the loss.
So - you can still sell loss stock and deduct the losses against capital gains this year. But beware the wash sale rules - and don't try to get around them with your IRA.
Links:
TaxProf Blog
Tax Guide for Investors
This is part of our series of posts on 2007 year end tax planning - one a day through December 31!
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Comments
In a NY Times article concerning IRAs and the wash rule on 12/22/07 David Cay Johnston stated:
"...
Those who violate the was rule in taxable trades faced only the expense of the transactions, as the government allowed the investor to add the disallowed tax loss to the price, or basis, paid for the new shares. This meant that when the shares were ultimately sold at a profit the capital gains was smaller, reducing the tax bit.
But under the new rules the tax savings would be permanently disallowed."
Mr. Johnston seems to state, at least to me, that adjustments to basis following a disallowed wash sale under 1091(d) are no longer permitted.
In reality what Roger Wade stated in his ruling was that a 1091(d) adjustment shall not be applied to the taxpayers' basis in an IRA following a disallowed wash sale.
Before I issue a complaint to the NY Times, I would like an opinion, as to whether, this writer, Mr. Johnston,really is a incompetent and a public menace, or if the fault was mine, since the article's subject is about a specific wash sale strategy involving IRA's.
Posted by: Howard Bitterman | December 22, 2007 12:45 PM