I need some help understanding Wash Sales.
Let me tell you what I understand: page 60 of the IRS pub 550 [www.irs.gov
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy sub-stantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.
If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
And specifically there is the "Revenue Ruling 2008-05" [www.irs.gov
which clarifies selling in taxable account and buying in an IRA ( #4 above).
My question is: Does selling an Stock at a loss in an IRA and buying back the same Stock in a Brokerage account constitute a wash sale? The wording of IRS pub 550 only specifies that, it is ' sell or trade stock or securities at a loss', and adding specifically ,(#2), that buying in a taxable account is wash sale, indicating that it is a wash sale.
Stating it in another way: It would seem that from the definition of a wash sale-- (pub 550) "A wash sale occurs when you sell or trade stock or securities at a loss...." not specifying anything about which account the sale is in, that a sale at a loss in an IRA could have create a wash sale by definition.
You ask why would I care? The last sentence of the above quote from IRS pub 550 states:
"Your holding period for the new stock or securities includes the holding period of the stock or securities sold".
If one simultaneously bought an Stock in the brokerage account and sold the same Stock at loss from an IRA, which was held 1+ years. The sale would be a wash sale, meaning that the Stock in the brokerage account would have the same loss and holding period. ie in this case, have an unrealized long term loss in the taxable brokerage account.
Is this a kind of loop hole for the wash sale rule?
To date I have not found any additional clarification from the IRS or from other sites.