Wash Sales Go To IRAs, Too

Last week the IRS announced in Revenue Rule 2008-05 that wash sale rules impact transactions into an IRA. This could have a major impact to the unaware.

A “wash sale” is when you sell shares of stock at a loss, and in the thirty day period before or after the sale you buy replacement shares. When that happens your capital loss is postponed; the disallowed loss increases your basis in the replacement shares (assuming the replacement shares are not purchased in an IRA).

In the ruling announced last week, the IRS determined that if one buys replacement shares in an IRA, the loss is lost forever. This ruling makes doing a wash sale into an IRA a very bad decision.

Other Coverage:
Roth Tax Update
TaxProf Blog


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