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My basic question is this: Do purchases in non-IRA accounts where losses are deductible get washed out by IRA accounts that are non-deductible and vice-versa?

Does a loss in a sale of an equity in my non-IRA account get washed out by my IRA account that purchases the same equity within 60 days? And then if I sell that equity in my IRA account and repurchase it in my IRA account again, does the basis get passed on to the IRA account? If this is the case, I lose my deduction entirely because my standard non-Roth IRA account is not tax deductible and the basis that originally came from my non-IRA account is now within my non deductible IRA account. Is this correct?

Also, if this is the case, shouldn't the reverse be true? If I purchase and sell an equity in my IRA account, shouldn't I be able to wash it out with my non-IRA account and collect and add the basis to the non-IRA purchase and therefore deduct losses from my IRA account in my non-IRA account? If this is the case, this could be valuable as I could do this with all my losses in my IRA account and make them deductible !!

So the bottom line question is, if I DON'T get to deduct losses from my non-IRA account because of a wash, would I then be able to reverse this and have a loss in my IRA account and WASH that out with my equity account and collect the basis for that IRA loss in the next non-IRA purchase? This saves money by being able to deduct my IRA losses. Is this clear as mud?

Jim
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You can't create a wash sale by selling in an IRA and buying in a taxable account. The IRS hasn't ruled on the reverse. It isn't clear if you lose the tax loss by selling at a loss in a taxable account then creating a wash sale in an IRA. The situation is best avoided.

Debra
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Losses within an IRA (doesn't matter what "flavor") are never washed because the gains aren't taxed. Creating a loss outside an IRA and then buying "substantially identical" shares within an IRA may be a wash sale. The IRS hasn't ruled on this. The transactions may also be considered related-party transactions, which would also prevent you from realizing the loss.

Bottom line is that most practitioners would advise you to avoid creating potential wash sale situations between taxable and tax-deferred accounts because you could "lose" the losses.

Ira
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>> Bottom line is that most practitioners would advise you to avoid creating potential wash sale situations between taxable and tax-deferred accounts because you could "lose" the losses.
<<

Agreed. You would think that with the regularity this question comes up, there would be some IRS and/or Tax Court ruling on it. Or failing that, it would be nice if Congress clarified this point of tax law once and for all, more specifically defining whether or not a wash sale includes a tax loss sale in a taxable account with a purchase in an IRA.

#29
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What if hubby sells a stock for a loss in a taxable account that's in his name only and wife buys same stock within 30 days in a taxable account that's in her name only? Does that make it a wash sale if they file jointly but not if they file MFS? Or would living in a community property state vs. one that is not make any difference?

--fleg
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What if hubby sells a stock for a loss in a taxable account that's in his name only and wife buys same stock within 30 days in a taxable account that's in her name only? Does that make it a wash sale if they file jointly but not if they file MFS? Or would living in a community property state vs. one that is not make any difference?

None of those scenarios work. They're related party sales. In a related party sale, the loss isn't deferred, it's lost forever. See the section on Related Party Sales in IRS Pub. 550, Investment Income and Expenses, www.irs.gov/pub/irs-pdf/p551.pdf starting on page 48.

Ira
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Is it just me or does this seem unfair and unjust that the law works in the favor of the IRS and never in our favor on this issue? You can possibly wash and lose a taxable loss and yet it doesn't work the other way around.

Jim
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Is it just me or does this seem unfair and unjust that the law works in the favor of the IRS and never in our favor on this issue? You can possibly wash and lose a taxable loss and yet it doesn't work the other way around.

Jim

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No, it's not just you. But no, it's not unfair. It was specifically inserted into the law (by Congress, not the IRS), to curtail abuses.

To be able to sell stock on Monday at a loss, and buy the stock back on Tuesday, leaves you not much worse off than you were on last Friday, when you had an UNREALized loss. To be able to deduct the loss, when you have not really disposed of any shares, is in the "too-good-to-be-true" category.

And yet it doesn't work the other way around.
What? You'd like to be able to sell at a gain, and cancel out the gain by buying shares cheaper if the market backs off a few points? Likewise, in the "too-good-to-be-true" category.

Bill
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Unless I am grossly misunderstanding something here, I disagree.

If I find myself in the unfortunate circumstance where I am in a losing stock and decide to sell it, I would like to count the loss. But if I even accidentally buy it in my IRA within 60 days, the loss gets transferred to my IRA account and is stuck there. I can then NEVER claim the loss and deduct it from my taxes.

What if you lose a LOT of money on a sale? That can be substantial if you cannot deduct the loss. It appears that my IRA eats up the loss deductibility and I can never claim it.

By "reverse" I mean this: if my loss can get washed away by my IRA forever and I can never deduct it, then why cannot a loss in the IRA pop back out and be deductible in my taxable account.

It is a one way ticket. You can lose, but you cannot win. You can lose your deductible loss, but you can never gain it back.

Tell me I am not the only one that can see the unfairness of this.

Jim
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What if you lose a LOT of money on a sale? That can be substantial if you cannot deduct the loss. It appears that my IRA eats up the loss deductibility and I can never claim it.
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Well, if you want to deduct the loss, don't reacquire shares within 30 days after the sale - "accidentally" or otherwise. You would know on the date of sale if you had acquired shares in the 30 days prior. I don't see how this is a hardship for anyone.

And, as others have mentioned, the law is murky on the subject of using an IRA to skirt around the wash sale rules. I've done it, too, using my 401K account, which I'd contend is a step further removed. But I'm aware of the risks involved, and would probably punt on the issue if I got audited, even though I think a legitimate case could be made.

Bill
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If I find myself in the unfortunate circumstance where I am in a losing stock and decide to sell it, I would like to count the loss. But if I even accidentally buy it in my IRA within 60 days, the loss gets transferred to my IRA account and is stuck there. I can then NEVER claim the loss and deduct it from my taxes.

Surely there are plenty of other investment ideas out there that offer alternatives as you wait out 30 days to buy new shares.

FWIW, you only need to wait 30 days, day 31 purchase the shares in the other account if you choose.


Hohum
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FWIW, you only need to wait 30 days, day 31 purchase the shares in the other account if you choose

30 days before and after for a total of 60 days.

Debra
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30 days before and after for a total of 60 days.

No, 30 days before and after for a total of 61 days. Don't forget to include the day of the sale.

Ira
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