Don’t run afoul of this IRS rule


Q. If I sold a stock from a regular account to take a tax loss at the end of the year, can I buy it back right away in my IRA without impacting the tax loss?
— Investor

A. You’re talking about the so-called wash sale rule.

First, it is great that you were proactive in tax loss harvesting during the year-end market tumult.

Let’s do a quick review of the wash sale rules.

A wash sale happens if you sell shares of a stock and repurchase or acquire the same stock within 30 days before or after the sale, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

He said the wash sale rule also applies to bonds, mutual funds and options.

“It should be noted that the wash sale rules apply to more than the same exact investment,” Maye said. “Per the IRS definition, the wash sale rules apply to not only the same exact security but any security that is substantially identical to the security sold as well.”

The IRS put these rules in place and enforces them because it wants to prevent a tax loss/deduction on property that an investor essentially still owns, he said.

Now let’s address your specific question about selling a stock in a taxable account and rebuying it immediately in an IRA account.

Maye said the IRS specifically addressed this back in 2008 in Revenue Ruling 2008-5.

Per the IRS ruling, when shares are sold in an after-tax account and substantially identical shares are purchased in an IRA within 30 days. the investor can’t claim the tax loss, Maye said.

“In addition, the investor doesn’t get a basis increase in the IRA either for the disallowed wash sale either,” he said. “So the answer is no you can not buy the same stock in your IRA as the wash sale rule applies to all investment accounts you own or control including a spouse’s account.”

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