Wash Sale?

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wassabi
Posts: 428
Joined: Sun Feb 02, 2014 8:06 am

Wash Sale?

Post by wassabi » Wed Oct 10, 2018 9:08 pm

On 2/5/18 I sold VBILX in taxable for a $3000 loss. On 2/28/2018 I had a $153 dividend reinvestment into VBILX in my IRA.

I just realized today that is likely a wash sale and the taxable loss cannot be claimed as a loss.

Can anyone confirm?

If so, then it’s probably a good time now with this down market to rebalance and TLH. Also, lesson learned is to not have automatic dividend reinvestment for same securities in any accounts if one plans to TLH.

jacoavlu
Posts: 621
Joined: Sun Jan 06, 2013 12:06 pm

Re: Wash Sale?

Post by jacoavlu » Wed Oct 10, 2018 10:34 pm

Wash sale yes
You don’t have the whole loss disallowed. Only the portion that could be allocated to the “replacement shares” purchased in your IRA

For instance if the $153 dividend reinvestment purchased 2 shares, then you would be disallowed the tax loss on 2 shares that you sold.

Pretty sure that’s how it works anyway.

MotoTrojan
Posts: 2611
Joined: Wed Feb 01, 2017 8:39 pm

Re: Wash Sale?

Post by MotoTrojan » Wed Oct 10, 2018 10:39 pm

wassabi wrote:
Wed Oct 10, 2018 9:08 pm
On 2/5/18 I sold VBILX in taxable for a $3000 loss. On 2/28/2018 I had a $153 dividend reinvestment into VBILX in my IRA.

I just realized today that is likely a wash sale and the taxable loss cannot be claimed as a loss.

Can anyone confirm?

If so, then it’s probably a good time now with this down market to rebalance and TLH. Also, lesson learned is to not have automatic dividend reinvestment for same securities in any accounts if one plans to TLH.
Only a portion is disallowed but that has nothing to do with whether or not now is a good time to TLH.

You mention $3000 which makes me think you believe that to be an annual max. You can claim much more but that’s the max you can write off regular income. Any remaining rolls over to next year, unless you have capital gains it can offset.

If you had a $500K loss and only harvested $3K, you would be doing yourself a massive disservice.

wassabi
Posts: 428
Joined: Sun Feb 02, 2014 8:06 am

Re: Wash Sale?

Post by wassabi » Thu Oct 11, 2018 6:50 am

jacoavlu wrote:
Wed Oct 10, 2018 10:34 pm
Wash sale yes
You don’t have the whole loss disallowed. Only the portion that could be allocated to the “replacement shares” purchased in your IRA

For instance if the $153 dividend reinvestment purchased 2 shares, then you would be disallowed the tax loss on 2 shares that you sold.

Pretty sure that’s how it works anyway.
That doesn’t apply if the disqualifying purchase took place in an IRA. I don’t have any options to write off the loss. Lesson learned.

wassabi
Posts: 428
Joined: Sun Feb 02, 2014 8:06 am

Re: Wash Sale?

Post by wassabi » Thu Oct 11, 2018 6:52 am

MotoTrojan wrote:
Wed Oct 10, 2018 10:39 pm
wassabi wrote:
Wed Oct 10, 2018 9:08 pm
On 2/5/18 I sold VBILX in taxable for a $3000 loss. On 2/28/2018 I had a $153 dividend reinvestment into VBILX in my IRA.

I just realized today that is likely a wash sale and the taxable loss cannot be claimed as a loss.

Can anyone confirm?

If so, then it’s probably a good time now with this down market to rebalance and TLH. Also, lesson learned is to not have automatic dividend reinvestment for same securities in any accounts if one plans to TLH.
Only a portion is disallowed but that has nothing to do with whether or not now is a good time to TLH.

You mention $3000 which makes me think you believe that to be an annual max. You can claim much more but that’s the max you can write off regular income. Any remaining rolls over to next year, unless you have capital gains it can offset.

If you had a $500K loss and only harvested $3K, you would be doing yourself a massive disservice.
My loss was a little over $3k but I just rounded down because I didn’t want to go check the exact loss. Good point though on being able to carry over losses each year until it is completely written off if the total is more than $3k. Unfortunately for me, this one is a wash (literally) and I have to eat the loss. Dividend reinvestment hurt me in this case.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Wash Sale?

Post by livesoft » Thu Oct 11, 2018 6:59 am

You only have some of your loss disallowed, say on about 14 shares. And since bond funds don't have large losses, maybe your realized loss was about 4% of the share value, so the disallowed loss is probably under $10 in total value.
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wassabi
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Re: Wash Sale?

Post by wassabi » Thu Oct 11, 2018 7:05 am

livesoft wrote:
Thu Oct 11, 2018 6:59 am
You only have some of your loss disallowed, say on about 14 shares. And since bond funds don't have large losses, maybe your realized loss was about 4% of the share value, so the disallowed loss is probably under $10 in total value.
I believe the IRS does not allow any loss to be claimed if the securities were repurchases in an IRA. https://www.investopedia.com/articles/r ... e-rule.aspHere’s a link that discusses it.

jacoavlu
Posts: 621
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Re: Wash Sale?

Post by jacoavlu » Thu Oct 11, 2018 7:09 am

You don’t get to recoup the loss later, that’s the trouble

In a taxable acct - taxable acct wash sale, your loss isn’t really disallowed but rather delayed to a later time, because you get to adjust the basis on the replacement shares, so eventually when you sell them, you get to claim the loss

But with replacement shares in the IRA there is no basis to adjust. So you don’t get to claim the loss later.

But again, the whole loss is not disallowed

livesoft
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Re: Wash Sale?

Post by livesoft » Thu Oct 11, 2018 7:18 am

wassabi wrote:
Thu Oct 11, 2018 7:05 am
I believe the IRS does not allow any loss to be claimed if the securities were repurchases in an IRA. https://www.investopedia.com/articles/r ... e-rule.aspHere’s a link that discusses it.
Here is where I had a disallowed loss because of a purchase in an IRA and how it was treated on my tax forms:
viewtopic.php?p=2784973#p2784973

I don't know what you meant by your link to the investopedia because your ENTIRE loss is NOT disallowed -- only some of it is disallowed and you have to calculate the amount disallowed. I've given you an example of how to do that in the thread I linked.
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wassabi
Posts: 428
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Re: Wash Sale?

Post by wassabi » Thu Oct 11, 2018 7:51 am

livesoft wrote:
Thu Oct 11, 2018 7:18 am
wassabi wrote:
Thu Oct 11, 2018 7:05 am
I believe the IRS does not allow any loss to be claimed if the securities were repurchases in an IRA. https://www.investopedia.com/articles/r ... e-rule.aspHere’s a link that discusses it.
Here is where I had a disallowed loss because of a purchase in an IRA and how it was treated on my tax forms:
viewtopic.php?p=2784973#p2784973

I don't know what you meant by your link to the investopedia because your ENTIRE loss is NOT disallowed -- only some of it is disallowed and you have to calculate the amount disallowed. I've given you an example of how to do that in the thread I linked.
Thanks for the link. I will read through it.

I don’t think what you said is entirely correct though. If the wash sale is triggered by a transaction (purchase) in an IRA then the IRS says “the loss on the sale of the stock or securities is disallowed...”.

For a normal wash sale that occurs only in a taxable account, the loss is disallowed but can at least be used to adjust the purchase price of the new security. However, that is not the case if the wash sale was triggered by a transaction in the IRA - the entire loss in the taxable account is disallowed. That’s the way I read Revenue Ruling 2008-5.

Am I misinterpreting it?

livesoft
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Re: Wash Sale?

Post by livesoft » Thu Oct 11, 2018 7:54 am

Yes, you are misinterpreting it. Because the wash sale is created by the purchase of shares and only that number of shares is the wash sale. The rest of the sales do not participate in the wash sale at all.
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rkhusky
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Re: Wash Sale?

Post by rkhusky » Thu Oct 11, 2018 8:10 am

+1 for only the number of shares equal to the the number purchased by the dividend in the IRA are washed out. All other shares can be used to reduce capital gains or income. But OP is right that the value of the washed shares are gone for good since the replacement shares were purchased inside an IRA.

I confess that I goofed earlier this year and had a wash sale with replacement shares in an IRA. In my tax bracket I am going to be out about $20 and also get to learn how to indicate a wash sale on my tax forms next year. So, I will also check out Livesoft's link.

NancyABQ
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Re: Wash Sale?

Post by NancyABQ » Thu Oct 11, 2018 12:03 pm

This is why I turn off automatic dividend reinvesting for all holdings in my taxable account, and for any holdings in my IRA that are also in my taxable account. Then I can control/prevent any inadvertent wash sales.

wassabi
Posts: 428
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Re: Wash Sale?

Post by wassabi » Fri Oct 12, 2018 6:59 am

NancyABQ wrote:
Thu Oct 11, 2018 12:03 pm
This is why I turn off automatic dividend reinvesting for all holdings in my taxable account, and for any holdings in my IRA that are also in my taxable account. Then I can control/prevent any inadvertent wash sales.
The automatic dividend reinvestment in ANY accounts - taxable and retirement - can trigger wash sales. In fact, even trading activity in a spouse’s account can trigger a wash sale in your account. Something to be aware of.

nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Wash Sale?

Post by nolesrule » Fri Oct 12, 2018 7:09 am

We reinvested dividends in our Roth IRAs. I had thought about holding off to TLH till the proper amount of time had passed, but after calculating the number of shares purchased between our two IRAs, the disallowed loss came to $20.15. So I sold the entire taxable position yesterday and will buy a similar ETF today (old position was mutual fund, so had to wait). We'll permanently lose ~$6 in taxes. Not the end of the world as others have mentioned in the past.

rkhusky
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Re: Wash Sale?

Post by rkhusky » Fri Oct 12, 2018 7:18 am

wassabi wrote:
Fri Oct 12, 2018 6:59 am
The automatic dividend reinvestment in ANY accounts - taxable and retirement - can trigger wash sales. In fact, even trading activity in a spouse’s account can trigger a wash sale in your account. Something to be aware of.
Only if you have substantially identical funds in both taxable and retirement accounts. Stay away from that and you have no worries about reinvesting dividends.

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