Wash sale involving IRA on same day

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  • #2424
    pepper
    Participant

    Hi,

    In 2018, I experimented with actively trading individual stocks for my first time. I used both my taxable investment account and my IRA. Several wash sales occurred. (I’ve learned my lesson since then, and will be trading more carefully (and less frequently) in the future.)

    So…I think generally understand how the wash sale rules work, but I’m confused about the following situation:

    On Feb 1st, I do the following….
    purchase 100 shares of stock ABC for $1000 in my taxable account
    purchase 100 shares of stock ABC for $1000 in my IRA

    Then on Feb 15th, I do the following…
    sell 100 shares of stock ABC for $900 in my taxable account
    sell 100 shares of stock ABC for $900 in my IRA

    So, I think I generated a wash sale here. But…how do I determine which lot was sold first on Feb 15? The taxable or IRA lot? Neither account’s statements list the times the sales happened, just the date.

    26 CFR § 1.1091-1 (b) says:
    “…If the order of disposition of stock or securities disposed of at a loss on the same day cannot be determined, the stock or securities will be considered to have been disposed of in the order in which they were originally acquired (beginning with the earliest acquisition).”

    Since the stocks were acquired on the same day, I can’t determine which lot was ACQUIRED first either…therefore I STILL can’t determine which order the stocks are considered to sold per this CFR rule.

    If the lot in the IRA is considered to be sold first….
    then the way I understand things, the “loss” on the IRA lot (effectively $0) is added to the basis of the taxable lot.
    Then, in this case I CAN deduct the loss on the taxable lot (-$100) on my taxes. 🙂

    On the other hand, if the lot in the taxable account is considered to be sold first…
    then the way I understand things, then the deduction of the loss in the taxable account is disallowed (since the taxable shares were “replaced” with shares in the IRA within the 61-day window). The loss can’t be added to the cost of the shares in the IRA (since there is no basis in the IRA?), and effectively, I have lost this deduction forever. (This scenario appears to have been specifically clarified in Rev. Rul. 2008-5).
    Therefore, in this case, I CAN’T deduct the loss on my taxes. 🙁

    So, is there any guidance on which one of the sales is considered to have happened first here? Can I choose it, maybe?

    (As a related question…is a sale of shares in an IRA that are “replaced” by shares in a taxable account even TECHNICALLY considered to be a “wash sale”?
    I.e., are the sold IRA shares considered to have been replaced by the shares in the taxable account? If so, then it seems they are affected by 26 CFR § 1.1091-1(e) (which I’ve read is called the “one bite of the apple” rule), which could affect subsequent wash sales that happen in the same 61-day window. If not, then things might be a little simpler. This is a situation that also affects me, that I’m trying to figure out.)

    Whew! Sorry for the long-winded questions. I’m an engineer, not a tax expert or lawyer. But, I secretly kind of find this kind of exercise fascinating 🙂

    -Kevin

    #3082
    Alan S.
    Participant

    No wash sale here per the following:
    >>>>1: Selling All
    On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell all 200 shares for $8,000 (a loss of $2,000).
    Most people wouldn’t even think about applying the wash sale rule here. You know instinctively it shouldn’t apply, even though there’s a purchase of identical stock less than 31 days before the sale. Your instincts are correct: the wash sale rule doesn’t apply because the stock you bought isn’t replacement stock for the stock you sold. That’s true because you sold the same stock you bought.>>>

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