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My brokerage told me it does but I can't understand how. Can anyone help clarify?

Thanks!
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My brokerage told me it does but I can't understand how. Can anyone help clarify?

An IRA is a tax-exempt entity, so capital gains and losses are moot for tax purposes. Thus the wash sale rule is moot for transactions within the IRA.

Perhaps the broker's rep was thinking, or perhaps you were asking, about a situation when you sell for a loss in a taxable account and replace the stock within 30 days in your IRA. In that case the wash sale rule does prevent you from recognizing the loss on Schedule D. Since the loss got transfered to the basis of the stock in the IRA, which is irrelevant to determining taxable withdrawals from the IRA, you will never get any tax benefit from the loss.

Phil
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I can't, but this does:

http://www.smartmoney.com/tax-advice/index.cfm?story=2008080...

It's IRS Revenue Ruling 2008-5:

Excerpt: "If an individual sells stock or securities for a loss and causes his or her individual retirement account or Roth IRA to purchase substantially identical stock or securities within 30 days before or after the sale, is the loss on the sale of the stock or securities disallowed? . . . HOLDING: The loss on the Sale of stock is disallowed under § 1091."
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AFter waiting 10 years for the IRs to settle this issue they manage, as usual, to leave a question unanswered. Under the statute you can get the denied loss back when you sell the stock that created the wash sale. They don't say how that's treated in an IRA.

Yes, I know the answer. The point is the IRS officially still leaves it hanging.

ed
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AFter waiting 10 years for the IRs to settle this issue they manage, as usual, to leave a question unanswered. Under the statute you can get the denied loss back when you sell the stock that created the wash sale. They don't say how that's treated in an IRA.

Yes, I know the answer. The point is the IRS officially still leaves it hanging.


That's the issue I've always struggled with. So what is your answer? I've never really come up with a satisfactory one.

--Peter
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Under the statute you can get the denied loss back when you sell the stock that created the wash sale. They don't say how that's treated in an IRA.

That's the issue I've always struggled with. So what is your answer? I've never really come up with a satisfactory one.


Noting again for the record that I'd like to see IRS's ruling challenged, the tax benefit of the loss disappears.

I disagree with Ed in that I don't think the IRS left it hanging at all. It's already established that when the wash sale rule applies you add the disallowed loss to the basis of the replacement shares and adjust their holding period. What's to clarify?

Of course, since the IRA is a tax-exempt entity that's all an exercise in futility.

Phil
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My simple solution is just avoid wash sale transactions all together. Only been at this since 1973 but so far it hasn't been a problem.
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