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Author: cslob One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121441  
Subject: 30 day wait Date: 11/15/2007 4:37 PM
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Hi,
Suppose I sell a stock today (for the purpose of realizing some losses to offset other gains). Fine. Now if I still believe in the stock, I can just wait 30+ days and buy it again. Also fine.

But since the sale was from a taxable account--couldn't I buy it back immediately within an IRA (for example, or even a Roth IRA)?

Could I get my wife to buy it within her IRA? (our taxable accounts are joint)

The purpose of the 30+ day wait is to prevent simple cost basis adjustment (which a taxpayer would only do if there was a loss or a pending tax rate increase on a gain), but in my scenarios the cost basis of the repurchased shares is irrelevant to (eventual) taxes.

(I'm expecting a 1 word answer--most likely NO)
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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96803 of 121441
Subject: Re: 30 day wait Date: 11/15/2007 4:48 PM
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The one word is NO. However, you got the wrong reason. Our legislators didn't want you to have the opportunity of reducing your taxes with a loss and still hold your position in the future. So the wash sales rules prevent that. As soon as you get out of the position you can take the loss. Since there's no way to adjust basis in an IRA, you probably lose the loss forever if you rebuy in the
IRA

Also all thoses other accounts are "related parties" and worse than a wash sale where you eventually can use the loss (unless it's in a non-taxed account), on a sale to a related party you loss the loss *forever*. And yes your wife is a related party, and so are *your* IRAs, corporations, partnerships, etc.



ed

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Author: cslob One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96804 of 121441
Subject: Re: 30 day wait Date: 11/15/2007 4:55 PM
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thanks edcosoft,

I *will* use the loss this year. I dumped something else short term with a gain and was searching for offsetting short term losses I could take--but they are all still stocks which I believe are a good investment.

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Author: epc53 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96805 of 121441
Subject: Re: 30 day wait Date: 11/15/2007 7:14 PM
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I *will* use the loss this year. I dumped something else short term with a gain and was searching for offsetting short term losses I could take--but they are all still stocks which I believe are a good investment.

remember the other way to avoid the wash sale is to buy more, wait the
required thirty some days and then sell the original shares to log your
loss. There's still time to do this this year.

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96816 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 11:42 AM
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edcosoft

If I understand what you are saying, I'm not sure you are right. The IRS has no record of what you do in your IRA account. They are completely different things - taxable and IRA. So I think you could sell a stock in your taxable account and buy it in the IRS. After all, when you withdraw from the IRA account, the total sum is taxable, and it doesn't matter if the stock you sold for the withdrawal is a profit or a loss. This question has been much discussed. So far as I know, the wash rule does not apply in this case.

brucedoe

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96818 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 12:37 PM
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If I understand what you are saying, I'm not sure you are right. The IRS has no record of what you do in your IRA account. They are completely different things - taxable and IRA. So I think you could sell a stock in your taxable account and buy it in the IRS. After all, when you withdraw from the IRA account, the total sum is taxable, and it doesn't matter if the stock you sold for the withdrawal is a profit or a loss. This question has been much discussed. So far as I know, the wash rule does not apply in this case.

Sorry, but ed is right. You may think that the IRS doesn't know what is going on within your IRA, but all it takes is an audit where they ask for your IRA trading records and they will know. The fact that IRA gains/distributions are treated differently from taxable accounts is irrelevant. It is clear from the Code that rebuying a "washed" taxable position within an IRA can be considered a related party transaction. The fact that it hasn't been adjudicated yet is no assurance for the future.

Ira

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96821 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 1:29 PM
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If I understand what you are saying, I'm not sure you are right.

I'm in the minority on this issue (at least on this board). But I think the issues are very clear. What is fuzzy is how the law applies to the facts.

The major unknown is what happens to the loss if a purchase in your IRA triggers a wash sale. The wash sale rules were designed to keep a taxpayer from artificially juggling their holding to generate tax losses while maintaining the same economic position. They merely affect the timing of when you recognize a loss. They do not permanently prohibit you from deducting a loss. They do that by adjusting the basis in the repurchased shares to defer the loss.

But basis in an IRA's holdings is a non-issue. An IRA doesn't pay taxes on it's income (barring some very unusual situations, which we can ignore for the time being). So deferring the loss by increasing the basis in the stock held by the IRA has the effect of permanently disallowing the loss. And I don't believe that is the intent of the wash sale laws and regulations.

So what needs to be dealt with, either in the code, the regs, or the courts, is what to do with the loss when the repurchase happens in an IRA.

But I can't outright say that ed and others holding a similar position are wrong. The best I can say is that there is a decent argument for holding that a personal sale at a loss accompanied by a repurchase in your IRA should have some treatment other than the normal wash sale treatment.

And unless you feel like making a name for yourself amongst tax professionals - and spending a lot of money on legal fees to do so - your best bet is to be careful to avoid the situation altogether.

--Peter

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96827 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 4:24 PM
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ptheland:

{{{If I understand what you are saying, I'm not sure you are right.}}}

"I'm in the minority on this issue (at least on this board). But I think the issues are very clear. What is fuzzy is how the law applies to the facts.

The major unknown is what happens to the loss if a purchase in your IRA triggers a wash sale. The wash sale rules were designed to keep a taxpayer from artificially juggling their holding to generate tax losses while maintaining the same economic position. They merely affect the timing of when you recognize a loss. They do not permanently prohibit you from deducting a loss. They do that by adjusting the basis in the repurchased shares to defer the loss.

But basis in an IRA's holdings is a non-issue. An IRA doesn't pay taxes on it's income (barring some very unusual situations, which we can ignore for the time being). So deferring the loss by increasing the basis in the stock held by the IRA has the effect of permanently disallowing the loss. And I don't believe that is the intent of the wash sale laws and regulations."


I respectfully disagree thta basis in an IRA is a non-issue, at least WRT to a traditional IRA. It is possible to have basis in a traditional IRA; and if you have basis in a traditional IRA, then the withdrawals with basis are not taxed. The rules require a proration.

So what needs to be dealt with, either in the code, the regs, or the courts, is what to do with the loss when the repurchase happens in an IRA.

But I can't outright say that ed and others holding a similar position are wrong. The best I can say is that there is a decent argument for holding that a personal sale at a loss accompanied by a repurchase in your IRA should have some treatment other than the normal wash sale treatment."


What about the related party rules and indirect sales? You do not address them at all.

"The wash sale rule is only one of the rules that can prevent you from claiming a deduction when you sell stock at a loss. You lose the deduction also if you sell to a related person. In the special language of the tax law, a "person" includes not only human beings, but also entities like the ones mentioned above: corporations, trusts, partnerships — anything that can be used to maintain indirect ownership of other assets, including stock."

http://fairmark.com/capgain/wash/wsira.htm

"The IRS says a contemporaneous sale and purchase should be treated as an indirect sale to a related person if they occurred together as part of a plan. Their position is backed up by decisions where courts ruled in favor of the IRS."

Id.

"Realistically, no one is going to believe the transactions were coincidental if the same person directed both of them. And that's exactly what's going on when you sell stock in a brokerage account and buy replacement shares in an IRA.

The IRS position is backed up by a ruling by the Supreme Court in a 1947 case called McWilliams (331 US 694). That case deals with a situation where a husband sold stock at a loss and had his broker buy replacement shares for his wife's account. I can't think of a good reason to treat repurchase in an IRA any differently."

"And unless you feel like making a name for yourself amongst tax professionals - and spending a lot of money on legal fees to do so - your best bet is to be careful to avoid the situation altogether."

Agreed.

Respectfully, JAFO

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96829 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 5:12 PM
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irasmilo

You are the pro so I give up.

brucedoe

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 96830 of 121441
Subject: Re: 30 day wait Date: 11/16/2007 5:37 PM
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I respectfully disagree thta basis in an IRA is a non-issue,

Note that I said "basis in an IRA's holdings" i.e. basis in the individual stocks, bonds, etc. I stand by that statement. That basis is normally a non-issue.

I agree that basis in the IRA itself is important. But that is a different basis.

What about the related party rules and indirect sales? You do not address them at all.

Again, I am not saying that there is no wash sale when an IRA is the purchaser. After beating the issue to death here and elsewhere, and doing my own research of the code and regs, I believe that it is a wash sale.

My contention, however, is that the result of this kind of wash sale is not the result Congress intended. I do not immediately recall, but I suspect the wash sale laws may have been written before IRAs were put into the tax code. Wash sales are fairly old, probably part of the original 1954 code. IRAs weren't introduced until the 1970s, IIRC. So unintended results are certainly a possibility here.

In a related party sale, the loss is not necessarily completely lost. If the property recovers in value above the original seller's basis, the relative buyer will benefit from the disallowed loss. (It works much like the gift of a property that has declined in value.)

--Peter

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