Question

Your client has heard about the wash sale rules. They propose that they will sell stock they hold personally in a taxable account at a loss before the end of the year. After the first of the year, they will buy the same stock in their Roth IRA account. They think that because the IRA is a tax deferred account it is treated as a separate individual - not the same as the taxable account. Can you find IRS guidance specific to this situation? Hint: It was a confusing issue for several taxpayers. Explain in your original post what the IRS guidance is.

Answer 1

The provision regarding the applicability of wash sales rule to IRAs is stated in Revenue Ruling 2008-5 under section 1091 of the code. When shares are sold and purchased identical shares within 30 days in a non-retirement account, the individual cannot claim tax losses for the sale, and the individual retirement account's basis or Roth IRA is not subject to increment under section 1091(d).

IRA account is not treated as a separate individual even though it is a tax-deferred account.