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Financial Planning / Tax Strategies
|Subject: Re: Wash sale: "Substantially Identical&||Date: 3/2/1998 6:00 PM|
|Author: KATinChicagoland||Number: 2319 of 121114|
<<If I sell shares of stock in a company that I hold outside of an IRA, and subsequently buy shares of the same stock within my IRA, is this considered a "wash sale"?>>
The answer is that no one can say for sure. The wash sale rule, as written in the Code and regulations, does not apply in this situation. But the IRS has sometimes contended -- successfully -- that a loss should be disallowed when a taxpayer sells property at a loss and uses a controlled entity to buy identical property. Some experts conclude that there is, in effect, a "common law" wash sale rule in addition to the one in the Code. There are no cases dealing with IRAs, so the issue is unclear.
The stakes are higher with this maneuver than with a regular wash sale. Normally if the wash sale rule applies you get an increase in the basis of the replacement stock, and later you can use that basis to recognize a loss or reduce a gain. But if the replacement stock is in an IRA, the increased basis does you no good, so the adverse results are more severe. That's why I shy away from recommending this course of action.
KAT in Chicagoland
Tax Guide for Investors
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