Selling stock today and buying the same tomorrow in a different account. IRS penalty? What cost?

Forum|Forum|4 years ago
December 13, 2021
3 replies
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Selling from taxable account. Buying in IRA account.

TurboTax Online

Critter-3

If you are selling at a gain no problem.

If you are selling at a loss then the loss will be a disallowed wash sale. To avoid a wash sale you must not buy the same stock for 30 days before or after the sale.

Mike9241

if you sell at a loss in your taxable a/c and buy the same security within 30 days in your IRA it is likely your broker will not adjust for the wash sale. this is something you'll have to do manually come filing time. what's more the "disallowed loss" disappears forever. you never get a tax benefit

Rick19744

Employee

The wash sale rules were put into place to avoid year end games; not necessarily between a taxable and non taxable account, but between two different accounts.

The wash sale rules under Section 1091 can be a little complicated and the basis of the new securities could be adjusted:

if the sales price was less than the repurchase price, then the basis of the new securities is deemed to be the basis of the securities sold plus the difference between the repurchase and the sale prices.
if the sales price was more than the repurchase price, then the basis of the new securities is considered to be the basis of the securities sold minus the difference between the sale and the repurchase prices.
there is also an IRS revenue ruling where the taxpayer had your scenario and received no basis adjustment. However, there are too few facts to understand why. RR 2008-5.

I don't plan on running the numbers with any scenarios. In general, you should just avoid this issue and wait 31 days.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

jtax

Employee

You can also not come under the wash-sale rule if the security you purchase is not “substantially identical” to the security sold at a loss. So it might be the case that if you sell an SP500 index fund and buy a Total Market index fund, or sell Ford and buy GM, that those replacement securities might not be "substantially identical." but close enough to keep you invested as you want to be for 30 days when you sell again and buy what you really want. (It would be a good idea to research if there is any guidance on what “substantially identical” means.)

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Anonymous_

Employee

@jtax wrote:

....(It would be a good idea to research if there is any guidance on what “substantially identical” means.)

It is unlikely that you will find anything, that has a significant bearing, directly from the IRS.

Pending mergers aside, it is rather clear that shares in two different corporations are not substantially identical, nor are two different actively managed mutual funds.

I believe the consensus, at least in the investment company, is to steer clear of buying/selling (within the wash sale rule period) index funds (passive) that are based on the same stock index but offered by different firms.