Wash Sales & IRAs
Revenue Ruling 2008-5 addresses IRS’ position on the treatment of the wash sale rules in relation to IRAs.
Internal Revenue Code Section 1091(a) (wash sale rules) denies a taxpayer a loss from the sale of stock or securities when the taxpayer repurchases substantially identical stock or securities within 30 days either side of the sale date. The taxpayer is denied the loss currently but adjusts the basis of the replacement stock or securities upwards by the denied amount. For example, a taxpayer sells 100 shares of ABC common stock for a loss of $1,000 on July 4, 2007. On July 16, 2007, the taxpayer buys 100 shares of ABC common stock for $7,000. The taxpayer is denied the $1,000 loss, but increases the basis of the July 16, 2007 ABC shares to $8,000 ($7,000 cost plus the $1,000 denied loss).
In Revenue Ruling 2008-5 the question posed was two parts: 1) does a purchase of substantially identical stock or securities by the taxpayer’s IRA or Roth IRA within 30 days either side of the sale date result in the denial of the loss under IRC Section 1091(a), and 2) if such a loss is denied to the taxpayer, does the IRA or Roth IRA receive a higher basis in the stock it purchased.
IRS’ answer to these questions is:
1) Yes, the purchase of substantially identical stock or securities by a taxpayer’s IRA or Roth IRA within 30 days either side of the sale date will kick in the wash sale rules and deny the taxpayer the loss.
2) No, the taxpayer does not receive a higher basis in the IRA or Roth IRA. The taxpayer’s basis in an IRA is the nondeductible contributions the taxpayer has made to the IRA.
Revenue Ruling 2008-5 can be found at by clicking on irs-drop and then on rr-08-05. We can also send you a copy of the Revenue Ruling as a pdf file attached to an email, upon request.
This text has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111). , , , .
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