Sell all shares in Roth IRA to avoid a wash sale?

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yosemite_mountain
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Sell all shares in Roth IRA to avoid a wash sale?

Post by yosemite_mountain » Sun Mar 22, 2020 6:25 pm

I would like to sell 180k worth of Vanguard Total Stock (VTSAX) in my taxable account and exchange the shares for Vanguard 500 Index in my taxable account. This would result in a 50k loss that I would tax loss harvest

Questions:
1.If I want to tax loss harvest today, would I need to first sell all the VTSAX in my Roth IRA account to avoid a wash sale? In the Roth IRA, I Iast bought $3k of VTSAX on 02/25/2020. . In the Roth IRA, I would sell all the Vanguard Total Stock (VTSAX) and exchange it with Vanguard 500 index.

2. Or should I just wait until 30 days after 02/25/2020 to exchange 180k worth of Vanguard Total Stock for Vanguard 500 in my taxable account. Then I would not need to worry about a wash sale.

3. Is Vanguard 500 Index (VFIAX) as tax efficient as Vanguard Total Stock (VTSAX) in a taxable account, in terms of % of qualified dividends?

Holdings across accounts
Taxable:
VTSAX: Vanguard Total Stock (In the taxable account, I last bought VTSAX in 2019)
VTIAX: Vanguard Total Intenational
Roth IRA:
VTSAX: Vanguard Total Stock (In the Roth IRA, I Iast bought $3k of VTSAX on 02/25/2020)
VTIAX: Vanguard Total International
401k:
VFIAX: Vanguard 500 Index
VTIAX: Vanguard Total International
VBTLX: Vanguard Total Bond
Last edited by yosemite_mountain on Sun Mar 22, 2020 7:53 pm, edited 1 time in total.

retiredjg
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Sun Mar 22, 2020 6:58 pm

What is 32 days after that last purchase? Count it on a calendar.

If you want to do something tomorrow, you could exchange all the total stock in Roth IRA to 500 index. When that is done, the next day sell the total stock in taxable and replace it with Vanguard's Large Cap index (not 500 index).

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Duckie
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by Duckie » Sun Mar 22, 2020 7:04 pm

yosemite_mountain wrote:If I want to tax loss harvest today, would I need to first sell all the VTSAX in my Roth IRA account to avoid a wash sale?
Yes.
Or should I just wait until 30 days after 02/25/2020 to exchange 180k worth of Vanguard Total Stock for Vanguard 500 in my taxable account. Then I would not need to worry about a wash sale.
In your Roth IRA are your VTSAX dividends set to automatically reinvest? I think that happens early this coming week. That reinvestment counts as a purchase.
Is Vanguard 500 Index (VFIAX) as tax efficient as Vanguard Total Stock (VTSAX) in a taxable account, in terms of % of qualified dividends?
500 Index is slightly more efficient. For 2019 VFIAX was 100% QDI and VTSAX was 93.79%. (Source)

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yosemite_mountain
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by yosemite_mountain » Sun Mar 22, 2020 7:50 pm

retiredjg wrote:
Sun Mar 22, 2020 6:58 pm
If you want to do something tomorrow, you could exchange all the total stock in Roth IRA to 500 index. When that is done, the next day sell the total stock in taxable and replace it with Vanguard's Large Cap index (not 500 index).
Thanks retiredjg. I want to do something tomorrow.

After exchanging all the total stock in Roth IRA to 500 index, why cant I the next day sell the total stock in taxable and replace it with Vanguard's 500 index? Sorry this is my first tax loss harvest, so I don't understand why I would "replace it with Vanguard's Large Cap index (not 500 index)"
Last edited by yosemite_mountain on Sun Mar 22, 2020 7:58 pm, edited 3 times in total.

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yosemite_mountain
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by yosemite_mountain » Sun Mar 22, 2020 7:52 pm

Duckie wrote:
Sun Mar 22, 2020 7:04 pm

In your Roth IRA are your VTSAX dividends set to automatically reinvest? I think that happens early this coming week. That reinvestment counts as a purchase.
Thanks Duckie.
My Roth IRA is not set to automatically re-invest.

retiredjg
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Mon Mar 23, 2020 8:53 am

yosemite_mountain wrote:
Sun Mar 22, 2020 7:50 pm
retiredjg wrote:
Sun Mar 22, 2020 6:58 pm
If you want to do something tomorrow, you could exchange all the total stock in Roth IRA to 500 index. When that is done, the next day sell the total stock in taxable and replace it with Vanguard's Large Cap index (not 500 index).
Thanks retiredjg. I want to do something tomorrow.

After exchanging all the total stock in Roth IRA to 500 index, why cant I the next day sell the total stock in taxable and replace it with Vanguard's 500 index? Sorry this is my first tax loss harvest, so I don't understand why I would "replace it with Vanguard's Large Cap index (not 500 index)"
It's just a preference and the way I'm accustomed to think about it. If you use the 500 index in taxable, then you have to worry about the 500 index in the Roth IRA when you do your next harvest.

Doing it my way, you never have to consider the Roth IRA again if you just harvest back and forth between total stock and Large Cap Index and hold the 500 index only in your other accounts.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by yosemite_mountain » Mon Mar 23, 2020 12:06 pm

retiredjg wrote:
Mon Mar 23, 2020 8:53 am
Doing it my way, you never have to consider the Roth IRA again if you just harvest back and forth between total stock and Large Cap Index and hold the 500 index only in your other accounts.
Thanks! Makes sense!

Karl A
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by Karl A » Tue Mar 24, 2020 10:26 am

retiredjg wrote:
Sun Mar 22, 2020 6:58 pm
What is 32 days after that last purchase? Count it on a calendar.

If you want to do something tomorrow, you could exchange all the total stock in Roth IRA to 500 index. When that is done, the next day sell the total stock in taxable and replace it with Vanguard's Large Cap index (not 500 index).

Quick question about this:

Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?


edited last sentence to "bought." sorry.

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 10:42 am

Karl A wrote:
Tue Mar 24, 2020 10:26 am
Quick question about this:

Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?

edited last sentence to "bought." sorry.
If you are selling EVERYTHING, then there is no wash-sale. Wash-sale generally transfers the basis of the sold shares to the replacement shares. If there are no replacement shares to transfer the basis to, there is no wash sale.

Even though the OP bought VTSAX within 30 days in Roth prior to selling the VTSAX in taxable, by the time the actual sale happens in taxable, the VTSAX shares in Roth have already been sold and not available to transfer the basis to as "replacement shares". That's why it is important to stagger the sales 1 day apart.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Tue Mar 24, 2020 11:29 am

Karl A wrote:
Tue Mar 24, 2020 10:26 am
Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?
I don't think so because there are no "replacement shares" for the total stock sold from the taxable account at a loss. What would have been replacement shares do not exist any more because you sold them before selling the total stock at a loss.

Think of it this way. To have a wash sale, two things must apply.
  • You have to sell something in a taxable account at a loss.

    And you still have to hold (somewhere) shares of that same something that were bought during the wash sale period (either 30 days before or 30 days after the sale for which you took the loss). In other words, you have to have replaced or pre-replaced what you sold at a loss.

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 11:47 am

yosemite_mountain wrote:
Sun Mar 22, 2020 6:25 pm
Questions:
1.If I want to tax loss harvest today, would I need to first sell all the VTSAX in my Roth IRA account to avoid a wash sale? In the Roth IRA, I Iast bought $3k of VTSAX on 02/25/2020. . In the Roth IRA, I would sell all the Vanguard Total Stock (VTSAX) and exchange it with Vanguard 500 index.
There may be reasons why you would want to sell 100% of your VTSAX shares in the Roth IRA, but I have no idea why it would be necessary for you to do that to avoid a wash sale. You should be required to sell only the number of (potential) replacement shares purchased within the wash sale period.

I don't know whether that would affect your decision.
"Discipline matters more than allocation.” ─William Bernstein

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yosemite_mountain
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by yosemite_mountain » Tue Mar 24, 2020 12:15 pm

iceport wrote:
Tue Mar 24, 2020 11:47 am

There may be reasons why you would want to sell 100% of your VTSAX shares in the Roth IRA, but I have no idea why it would be necessary for you to do that to avoid a wash sale. You should be required to sell only the number of (potential) replacement shares purchased within the wash sale period.

I don't know whether that would affect your decision.
In a Roth IRA there is no way to sell specific lots that you bought within the last 30 days. So tats why I would have to sell all.

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 12:24 pm

yosemite_mountain wrote:
Tue Mar 24, 2020 12:15 pm
iceport wrote:
Tue Mar 24, 2020 11:47 am

There may be reasons why you would want to sell 100% of your VTSAX shares in the Roth IRA, but I have no idea why it would be necessary for you to do that to avoid a wash sale. You should be required to sell only the number of (potential) replacement shares purchased within the wash sale period.

I don't know whether that would affect your decision.
In a Roth IRA there is no way to sell specific lots that you bought within the last 30 days. So tats why I would have to sell all.
Okay. So let's pretend you could for just a second. If you could select the exact shares purchased in the wash sale period and sold those, would that work?

Assuming your answer would be "yes," the next obvious question is this: What is the difference between those specific shares and any other shares of that fund in your IRA?

Do they have different cost bases? Why would it matter? Even if your broker tracks the cost, the cost basis of specific shares is irrelevant for tax purposes in an IRA.

Can the cost basis of any of the shares be adjusted in accordance with the wash sale rule? No, they can't, because cost basis is irrelevant.

Does the holding period matter at all? No. All shares distributed from the account will be taxed identically, no matter when they were purchased.

If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
"Discipline matters more than allocation.” ─William Bernstein

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 1:10 pm

iceport wrote:
Tue Mar 24, 2020 12:24 pm
If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 1:11 pm

lakpr wrote:
Tue Mar 24, 2020 1:10 pm
iceport wrote:
Tue Mar 24, 2020 12:24 pm
If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?
Nowhere do I make that claim. My claim is there is *no meaningful difference*.
"Discipline matters more than allocation.” ─William Bernstein

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 1:17 pm

iceport wrote:
Tue Mar 24, 2020 1:11 pm
lakpr wrote:
Tue Mar 24, 2020 1:10 pm
iceport wrote:
Tue Mar 24, 2020 12:24 pm
If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?
Nowhere do I make that claim. My claim is there is *no meaningful difference*.
I understood your point. What I am trying to say is that just as you are claiming there is no meaningful difference, the IRS is equally justified if they claim that you intended to sell the first lot of shares you purchased years ago, and the recent lot of shares you purchased less than 30 days ago are still the replacement shares. Absent a tax ruling, this is an argument that will not have a clear decision. Best to sidestep the entire decision, especially when selling in a IRA account has no tax consequences, by selling the entire position.

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 1:29 pm

lakpr wrote:
Tue Mar 24, 2020 1:17 pm
iceport wrote:
Tue Mar 24, 2020 1:11 pm
lakpr wrote:
Tue Mar 24, 2020 1:10 pm
iceport wrote:
Tue Mar 24, 2020 12:24 pm
If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?
Nowhere do I make that claim. My claim is there is *no meaningful difference*.
I understood your point. What I am trying to say is that just as you are claiming there is no meaningful difference, the IRS is equally justified if they claim that you intended to sell the first lot of shares you purchased years ago, and the recent lot of shares you purchased less than 30 days ago are still the replacement shares. Absent a tax ruling, this is an argument that will not have a clear decision. Best to sidestep the entire decision, especially when selling in a IRA account has no tax consequences, by selling the entire position.
To what advantage? How does the choice of shares benefit the taxpayer one way or another? So what if you wanted to sell the first shares? How does that help? How is it any different from selling the most recent? What are you "getting away with?"

So, if I might summarize where this reasoning would leave us:

It's perfectly fine to blatantly, clearly, obviously violate the spirit of the was sale rule — by, for example, using two different "total stock market index" funds for a TLH pair — and that would be fine, but even if you comply with the precise intent of the wash sale rule, and nullify any recent purchases within the wash sale period, the IRS would hammer you on an irrelevant technicality?

I don't buy that. It makes no sense.
"Discipline matters more than allocation.” ─William Bernstein

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 1:41 pm

iceport wrote:
Tue Mar 24, 2020 1:29 pm
lakpr wrote:
Tue Mar 24, 2020 1:17 pm
iceport wrote:
Tue Mar 24, 2020 1:11 pm
lakpr wrote:
Tue Mar 24, 2020 1:10 pm
iceport wrote:
Tue Mar 24, 2020 12:24 pm
If one share is virtually indistinguishable from any other share, selling the correct number of shares puts you in exactly the same economic position (with respect to that fund) as if you had never made the most recent purchase. How could the IRS claim you were illegally seeking to stay invested in the fund while simultaneously claiming the loss?
How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?
Nowhere do I make that claim. My claim is there is *no meaningful difference*.
I understood your point. What I am trying to say is that just as you are claiming there is no meaningful difference, the IRS is equally justified if they claim that you intended to sell the first lot of shares you purchased years ago, and the recent lot of shares you purchased less than 30 days ago are still the replacement shares. Absent a tax ruling, this is an argument that will not have a clear decision. Best to sidestep the entire decision, especially when selling in a IRA account has no tax consequences, by selling the entire position.
To what advantage? How does the choice of shares benefit the taxpayer one way or another? So what if you wanted to sell the first shares? How does that help? How is it any different from selling the most recent? What are you "getting away with?"

So, if I might summarize where this reasoning would leave us:

It's perfectly fine to blatantly, clearly, obviously violate the spirit of the was sale rule — by, for example, using two different "total stock market index" funds for a TLH pair — and that would be fine, but even if you comply with the precise intent of the wash sale rule, and nullify any recent purchases within the wash sale period, the IRS would hammer you on an irrelevant technicality?

I don't buy that. It makes no sense.
Whoever said IRS regulations do or should make sense? When it comes to taxes, what's in print are them the rules. Rules say that if you buy same/substantially identical security in the past 30 days prior to the date claiming the loss, you are liable for wash-sales. All your convoluted efforts to "get rid of" those recently bought sales CAN be invalidated; after all, you bought 300 shares 15 days ago in your IRA, and as of the date of "tax loss" sale, you still have at least 300 shares left in the IRA, bingo, wash-sale. No IFs, no BUTs. Is it printed in the rules clearly and unambiguously? YES.

The only way to get IRS off your back is to completely sell all the position in the IRA a day prior to selling the position in taxable account. Anything short of that, you are taking your chances.

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 1:48 pm

lakpr wrote:
Tue Mar 24, 2020 1:41 pm
iceport wrote:
Tue Mar 24, 2020 1:29 pm
lakpr wrote:
Tue Mar 24, 2020 1:17 pm
iceport wrote:
Tue Mar 24, 2020 1:11 pm
lakpr wrote:
Tue Mar 24, 2020 1:10 pm


How can YOU claim that what you sold are the most recent shares, and not the earliest purchased shares?
Nowhere do I make that claim. My claim is there is *no meaningful difference*.
I understood your point. What I am trying to say is that just as you are claiming there is no meaningful difference, the IRS is equally justified if they claim that you intended to sell the first lot of shares you purchased years ago, and the recent lot of shares you purchased less than 30 days ago are still the replacement shares. Absent a tax ruling, this is an argument that will not have a clear decision. Best to sidestep the entire decision, especially when selling in a IRA account has no tax consequences, by selling the entire position.
To what advantage? How does the choice of shares benefit the taxpayer one way or another? So what if you wanted to sell the first shares? How does that help? How is it any different from selling the most recent? What are you "getting away with?"

So, if I might summarize where this reasoning would leave us:

It's perfectly fine to blatantly, clearly, obviously violate the spirit of the was sale rule — by, for example, using two different "total stock market index" funds for a TLH pair — and that would be fine, but even if you comply with the precise intent of the wash sale rule, and nullify any recent purchases within the wash sale period, the IRS would hammer you on an irrelevant technicality?

I don't buy that. It makes no sense.
Whoever said IRS regulations do or should make sense? When it comes to taxes, what's in print are them the rules. Rules say that if you buy same/substantially identical security in the past 30 days prior to the date claiming the loss, you are liable for wash-sales. All your convoluted efforts to "get rid of" those recently bought sales CAN be invalidated; after all, you bought 300 shares 15 days ago in your IRA, and as of the date of "tax loss" sale, you still have at least 300 shares left in the IRA, bingo, wash-sale. No IFs, no BUTs. Is it printed in the rules clearly and unambiguously? YES.

The only way to get IRS off your back is to completely sell all the position in the IRA a day prior to selling the position in taxable account. Anything short of that, you are taking your chances.
Well, that reasoning seems so ludicrous, I'd sleep like a baby taking that "chance." (And I'm about as paranoid an anyone I know about running afoul of the IRS and their potential to make our lives miserable.)

PS: I hope this exchange didn't come across as rude. I'm just trying to make a point, and getting animated. I've asked for Rick Ferri's next podcast guest, a "tax expert," to address this question. I sincerely hope he does.
"Discipline matters more than allocation.” ─William Bernstein

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 1:59 pm

iceport wrote:
Tue Mar 24, 2020 1:48 pm
lakpr wrote:
Tue Mar 24, 2020 1:41 pm
iceport wrote:
Tue Mar 24, 2020 1:29 pm
lakpr wrote:
Tue Mar 24, 2020 1:17 pm
iceport wrote:
Tue Mar 24, 2020 1:11 pm


Nowhere do I make that claim. My claim is there is *no meaningful difference*.
I understood your point. What I am trying to say is that just as you are claiming there is no meaningful difference, the IRS is equally justified if they claim that you intended to sell the first lot of shares you purchased years ago, and the recent lot of shares you purchased less than 30 days ago are still the replacement shares. Absent a tax ruling, this is an argument that will not have a clear decision. Best to sidestep the entire decision, especially when selling in a IRA account has no tax consequences, by selling the entire position.
To what advantage? How does the choice of shares benefit the taxpayer one way or another? So what if you wanted to sell the first shares? How does that help? How is it any different from selling the most recent? What are you "getting away with?"

So, if I might summarize where this reasoning would leave us:

It's perfectly fine to blatantly, clearly, obviously violate the spirit of the was sale rule — by, for example, using two different "total stock market index" funds for a TLH pair — and that would be fine, but even if you comply with the precise intent of the wash sale rule, and nullify any recent purchases within the wash sale period, the IRS would hammer you on an irrelevant technicality?

I don't buy that. It makes no sense.
Whoever said IRS regulations do or should make sense? When it comes to taxes, what's in print are them the rules. Rules say that if you buy same/substantially identical security in the past 30 days prior to the date claiming the loss, you are liable for wash-sales. All your convoluted efforts to "get rid of" those recently bought sales CAN be invalidated; after all, you bought 300 shares 15 days ago in your IRA, and as of the date of "tax loss" sale, you still have at least 300 shares left in the IRA, bingo, wash-sale. No IFs, no BUTs. Is it printed in the rules clearly and unambiguously? YES.

The only way to get IRS off your back is to completely sell all the position in the IRA a day prior to selling the position in taxable account. Anything short of that, you are taking your chances.
Well, that reasoning seems so ludicrous, I'd sleep like a baby taking that "chance." (And I'm about as paranoid an anyone I know about running afoul of the IRS and their potential to make our lives miserable.)
You and I had a conversation on the subject of wash-sales and 401k/403b accounts, in a different thread, when you disagreed with me on my stance that 401k/403b accounts do not need to be included in the wash-sale rules. You even offered an example of "hypothetically I sell a million dollars in taxable but buy a million dollars in 401k of the same security, are you really saying that there is no wash sale?" and expressed skepticism.

So if I say "I will sleep like a baby taking the chance that the IRS won't come after me for buying the same security in 401k/403b" -- is it not the same thing as the stance you are taking above?

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 2:13 pm

lakpr wrote:
Tue Mar 24, 2020 1:59 pm
You and I had a conversation on the subject of wash-sales and 401k/403b accounts, in a different thread, when you disagreed with me on my stance that 401k/403b accounts do not need to be included in the wash-sale rules. You even offered an example of "hypothetically I sell a million dollars in taxable but buy a million dollars in 401k of the same security, are you really saying that there is no wash sale?" and expressed skepticism.

So if I say "I will sleep like a baby taking the chance that the IRS won't come after me for buying the same security in 401k/403b" -- is it not the same thing as the stance you are taking above?
Sort of, but not exactly, lakpr. I'm focused first and foremost on complying with the spirit of the wash sale rule whenever the letter of the law is obscure. That rule is intended to prevent a taxpayer from claiming a loss on the sale of a security while staying invested in the security, as qualified by the wash sale period.

I would contend that "hiding" a wash sale in a 401k does not comply with the spirit of the wash sale rule, and thus should be considered inappropriate and subject to being ruled against, if ever found in an audit. You and I are in complete agreement that the IRS will likely never know about it, and thus you will likely never be held liable for taxes avoided.

In this case here, the same is true, the IRS would probably never know about the partial wash sale. However, that's not what gives me comfort. The comfort factor comes in knowing with certainty that I would not be attempting to violate the intent of the wash sale rule.
"Discipline matters more than allocation.” ─William Bernstein

lakpr
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 2:24 pm

iceport wrote:
Tue Mar 24, 2020 2:13 pm
In this case here, the same is true, the IRS would probably never know about the partial wash sale. However, that's not what gives me comfort. The comfort factor comes in knowing with certainty that I would not be attempting to violate the intent of the wash sale rule.
I think here is where you and I disagree. The IRS computers are focused on the IRA transactions and can easily see the purchase of same security less than 30 days prior to the tax-loss sale, and can flag it as wash-sale and send you a CP-2000 notice. So I would be a lot more careful to not give the IRS any reason to do so, knowing full well that the IRAs of self and spouse are explicitly mentioned by the IRS as being in the purview of the wash-sale rules.

Same as you, my comfort factor comes in from the fact that the IRS has never ever mentioned 401k/403b rules as being in the purview of wash-sale rules, and equally likely that they wouldn't catch it in their computers (may be they don't even look at 401k/403b much less match-up institutional fund tickers to the retail tickers, such as VIIIX being substantially identical to VFIAX).

And I don't go divining for the "intent" of the congressional laws, only what they explicitly say and what the enforcement arm (IRS) has set the rules to be.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Tue Mar 24, 2020 2:27 pm

This seems like the time to bring up some questions.

iceport, I see the logic of what you are saying. However, I'm unaware of any sources or people who think the same thing. It could be that I have forgotten. Or it could be that I'm just wrong.

Are you aware of anything, other than your own logic, that supports your position?

There are things I would do myself that I would not suggest to others who might have the notion that I know what I'm talking about rather than expressing my observations and opinions. When I suggest things to others, I generally suggest the more conservative option or the more widely supported opinion even if I am willing to take a different approach myself.

Or I say "opinions differ" and try to present a fair version of the opposing opinions.

On this issue, there appears to be no question that selling the entire holding in an IRA will prevent a wash sale. In your opinion, that is selling more than necessary and you are ready and willing to fight that out with the IRS should it become necessary. But is is really fair to suggest that to unknowing people looking for guidance? Will they know what to do or say if they follow your advice and are faced with explaining it to the IRS?

I don't think we will have a factual answer or reliable guidance from the IRS on this question any time soon. Until then, I think it is fair to the people who post questions to know that there are different opinions on the matter.

As far as I know, again I could be wrong, your opinion is the outlying opinion on this issue. You have every right to post it, but in fairness to the readers, wouldn't it be fair to let people know that other opinions exist and that not everybody agrees that your course of action is the generally accepted course of action?

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 2:29 pm

lakpr wrote:
Tue Mar 24, 2020 2:24 pm
And I don't go divining for the "intent" of the congressional laws, only what they explicitly say and what the enforcement arm (IRS) has set the rules to be.
The intent was clearly and explicitly provided by a judge in a court ruling. No need for "divining."
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 2:50 pm

Hi retiredgj, you ask some great questions. I'll try to answer them frankly and honestly.
retiredjg wrote:
Tue Mar 24, 2020 2:27 pm
Are you aware of anything, other than your own logic, that supports your position?
No, I'm not.
retiredjg wrote:
Tue Mar 24, 2020 2:27 pm
There are things I would do myself that I would not suggest to others who might have the notion that I know what I'm talking about rather than expressing my observations and opinions. When I suggest things to others, I generally suggest the more conservative option or the more widely supported opinion even if I am willing to take a different approach myself.

Or I say "opinions differ" and try to present a fair version of the opposing opinions.

On this issue, there appears to be no question that selling the entire holding in an IRA will prevent a wash sale. In your opinion, that is selling more than necessary and you are ready and willing to fight that out with the IRS should it become necessary. But is is really fair to suggest that to unknowing people looking for guidance? Will they know what to do or say if they follow your advice and are faced with explaining it to the IRS?

I don't think we will have a factual answer or reliable guidance from the IRS on this question any time soon. Until then, I think it is fair to the people who post questions to know that there are different opinions on the matter.
I wholeheartedly agree, and I strive to do that also. If there were no prior assertions, that's what I would do. In this thread, the other perspective had already been offered several times, so I took it as self-evident that there different opinions. Probably I should not have stated my position with such absolute certainty.
retiredjg wrote:
Tue Mar 24, 2020 2:27 pm
As far as I know, again I could be wrong, your opinion is the outlying opinion on this issue. You have every right to post it, but in fairness to the readers, wouldn't it be fair to let people know that other opinions exist and that not everybody agrees that your course of action is the generally accepted course of action?
Well, it seems my perspective is an outlier... here on the forum. I'll give you that. But in fairness, I've not seem the strategy of "selling all" offered as a remedy anywhere else, either. I haven't looked for it, particularly, but I haven't seen it.

Have you seen any specific advice from a tax professional published elsewhere (and not affiliated with the forum) that it's possible to avert a potential wash sale involving replacement shares in an IRA by selling the entire position? It sure does make sense — if that has any value — but where else other than here has it been recommended?

Again, just to reiterate, whenever I've posted this advice before any other conflicting perspective had been offered, I've tried to make sure to note that others disagree.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 2:52 pm

iceport wrote:
Tue Mar 24, 2020 2:29 pm
lakpr wrote:
Tue Mar 24, 2020 2:24 pm
And I don't go divining for the "intent" of the congressional laws, only what they explicitly say and what the enforcement arm (IRS) has set the rules to be.
The intent was clearly and explicitly provided by a judge in a court ruling. No need for "divining."
But the enforcement arm itself seems to be ignoring this ruling. Where in the past 30 years since the wash-sales rules are enacted, has the IRS ever brought 401k/403b rules into the picture? Also for the record, the ruling only says "accounts owned by the taxpayer", never mentioned retirement plans 401k/403b explicitly.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 2:57 pm

lakpr wrote:
Tue Mar 24, 2020 2:52 pm
iceport wrote:
Tue Mar 24, 2020 2:29 pm
lakpr wrote:
Tue Mar 24, 2020 2:24 pm
And I don't go divining for the "intent" of the congressional laws, only what they explicitly say and what the enforcement arm (IRS) has set the rules to be.
The intent was clearly and explicitly provided by a judge in a court ruling. No need for "divining."
But the enforcement arm itself seems to be ignoring this ruling. Where in the past 30 years since the wash-sales rules are enacted, has the IRS ever brought 401k/403b rules into the picture?
Couldn't the same have been said of IRAs, right up until the ruling that included them explicitly? I just don't see this as a valid argument.

I'll grant you that we possibly agree on another point, though: the IRS seem to have little interest in enforcing the wash sale rules at all. Whether out of necessity, due to lack of funding and personnel, or intentionally, as a matter of policy, we can't tell. But it does seem as though enforcing the wash sale rule is a low priority — in general!
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Tue Mar 24, 2020 3:02 pm

iceport wrote:
Tue Mar 24, 2020 2:50 pm
Have you seen any specific advice from a tax professional published elsewhere (and not affiliated with the forum) that it's possible to avert a potential wash sale involving replacement shares in an IRA by selling the entire position? [/b]It sure does make sense — if that has any value — but where else other than here has it been recommended?
I assume that question is for me.

No, I have not looked for clarification on this issue other than the Fairmark site.

My memory may be faulty, but I believe this was discussed at length starting about November 2007 and lasting a couple of years. :happy What I remember is that selling all the shares in IRA would prevent the issue for sure by preventing the existence of "replacement shares"

Of course, that is not the same as saying it is the only way to prevent a wash sale. But since nobody knows with certainty, I'm going to continue to recommend the approach that people here generally agree will work for sure.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Tue Mar 24, 2020 3:08 pm

iceport wrote:
Tue Mar 24, 2020 2:57 pm
Couldn't the same have been said of IRAs, right up until the ruling that included them explicitly? I just don't see this as a valid argument.
Yes, it could have been said for the IRAs too. Whether it's a valid argument, shall we just say we have different viewpoints, and agree to disagree? I have made my stance clear for a long time: that which is not explicitly prohibited, or explicitly enforced, is implicitly allowed. Until it's not allowed explicitly any more.

Edited to add: I think the Laches Doctrine applies here; the IRS has had 30 long years to explicitly mention 401k / 403b plans to be in the purview of wash-sale rules, yet haven't done so. So the taxpayer is justified in assuming that they were never intended to be part of the wash-sale rules enforcement by the IRS in the first place.
iceport wrote:
Tue Mar 24, 2020 2:57 pm
I'll grant you that we possibly agree on another point, though: the IRS seem to have little interest in enforcing the wash sale rules at all. Whether out of necessity, due to lack of funding and personnel, or intentionally, as a matter of policy, we can't tell. But it does seem as though enforcing the wash sale rule is a low priority — in general!
Yes, agreed with the above sentences.
Last edited by lakpr on Tue Mar 24, 2020 3:11 pm, edited 1 time in total.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 3:10 pm

retiredjg wrote:
Tue Mar 24, 2020 3:02 pm
iceport wrote:
Tue Mar 24, 2020 2:50 pm
Have you seen any specific advice from a tax professional published elsewhere (and not affiliated with the forum) that it's possible to avert a potential wash sale involving replacement shares in an IRA by selling the entire position? [/b]It sure does make sense — if that has any value — but where else other than here has it been recommended?
I assume that question is for me.

No, I have not looked for clarification on this issue other than the Fairmark site.

My memory may be faulty, but I believe this was discussed at length starting about November 2007 and lasting a couple of years. :happy What I remember is that selling all the shares in IRA would prevent the issue for sure by preventing the existence of "replacement shares"

Of course, that is not the same as saying it is the only way to prevent a wash sale. But since nobody knows with certainty, I'm going to continue to recommend the approach that people here generally agree will work for sure.
The lengthy discussion, that just involved another bunch of forum members, though, right? When push comes to shove on this murky subject, aren't we all just making assumptions?
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Tue Mar 24, 2020 3:13 pm

lakpr wrote:
Tue Mar 24, 2020 3:08 pm
iceport wrote:
Tue Mar 24, 2020 2:57 pm
Couldn't the same have been said of IRAs, right up until the ruling that included them explicitly? I just don't see this as a valid argument.
Yes, it could have been said for the IRAs too. Whether it's a valid argument, shall we just say we have different viewpoints, and agree to disagree?
I'm gladly willing to agree to that.

I'm also willing to admit I'm not 100% positive of any of this — but I don't believe anybody else is, either! ;-) 8-)
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Tue Mar 24, 2020 3:34 pm

iceport wrote:
Tue Mar 24, 2020 3:10 pm
retiredjg wrote:
Tue Mar 24, 2020 3:02 pm
iceport wrote:
Tue Mar 24, 2020 2:50 pm
Have you seen any specific advice from a tax professional published elsewhere (and not affiliated with the forum) that it's possible to avert a potential wash sale involving replacement shares in an IRA by selling the entire position? [/b]It sure does make sense — if that has any value — but where else other than here has it been recommended?
I assume that question is for me.

No, I have not looked for clarification on this issue other than the Fairmark site.

My memory may be faulty, but I believe this was discussed at length starting about November 2007 and lasting a couple of years. :happy What I remember is that selling all the shares in IRA would prevent the issue for sure by preventing the existence of "replacement shares"

Of course, that is not the same as saying it is the only way to prevent a wash sale. But since nobody knows with certainty, I'm going to continue to recommend the approach that people here generally agree will work for sure.
The lengthy discussion, that just involved another bunch of forum members, though, right? When push comes to shove on this murky subject, aren't we all just making assumptions?
Yes, the discussion was among forum members, but I don't consider that a weakness. On this issue, I suspect that forum members have done more research and had more intelligent discussions about TLHing and wash sales than most anyone else out there.

And I'm not excluding you from that characterization. You just have a different opinion from mine. There could have been others with that same opinion back then, I do not remember.

Unfortunately, without clear guidance (which will probably never happen), I think your opinion is more likely to get unsuspecting people into trouble than the other opinion...should the IRS ever stumble on it.

It seems pretty clear that the IRS is not spending time or money looking for wash sales on people's tax returns. Maybe they have so little reliable guidance on it themselves that most examiners would not even recognize a wash sale if they saw one.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by rkhusky » Tue Mar 24, 2020 4:13 pm

lakpr wrote:
Tue Mar 24, 2020 3:08 pm
Edited to add: I think the Laches Doctrine applies here; the IRS has had 30 long years to explicitly mention 401k / 403b plans to be in the purview of wash-sale rules, yet haven't done so. So the taxpayer is justified in assuming that they were never intended to be part of the wash-sale rules enforcement by the IRS in the first place.
I disagree with the above interpretation. The wash sale statute exists. It covers all accounts. There has never been a ruling that exempted any account. There is no need for the IRS to specifically list all the types of accounts to which it applies, since it applies to all accounts that the taxpayer controls.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by Karl A » Tue Mar 24, 2020 8:22 pm

retiredjg wrote:
Tue Mar 24, 2020 11:29 am
Karl A wrote:
Tue Mar 24, 2020 10:26 am
Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?
I don't think so because there are no "replacement shares" for the total stock sold from the taxable account at a loss. What would have been replacement shares do not exist any more because you sold them before selling the total stock at a loss.

Think of it this way. To have a wash sale, two things must apply.
  • You have to sell something in a taxable account at a loss.

    And you still have to hold (somewhere) shares of that same something that were bought during the wash sale period (either 30 days before or 30 days after the sale for which you took the loss). In other words, you have to have replaced or pre-replaced what you sold at a loss.
Last question on this point...

In the above scenario, if the OP also held total stock in another separate IRA that was not touched at all, would it then be a wash sale?

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by Duckie » Tue Mar 24, 2020 9:27 pm

Karl A wrote:In the above scenario, if the OP also held total stock in another separate IRA that was not touched at all, would it then be a wash sale?
Yes, if the OP still held VTSAX in "any" IRA it would be a wash sale.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by retiredjg » Wed Mar 25, 2020 8:17 am

Karl A wrote:
Tue Mar 24, 2020 8:22 pm
retiredjg wrote:
Tue Mar 24, 2020 11:29 am
Karl A wrote:
Tue Mar 24, 2020 10:26 am
Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?
I don't think so because there are no "replacement shares" for the total stock sold from the taxable account at a loss. What would have been replacement shares do not exist any more because you sold them before selling the total stock at a loss.

Think of it this way. To have a wash sale, two things must apply.
  • You have to sell something in a taxable account at a loss.

    And you still have to hold (somewhere) shares of that same something that were bought during the wash sale period (either 30 days before or 30 days after the sale for which you took the loss). In other words, you have to have replaced or pre-replaced what you sold at a loss.
Last question on this point...

In the above scenario, if the OP also held total stock in another separate IRA that was not touched at all, would it then be a wash sale?
I think I have a different opinion from Ducky, but we may be thinking of different scenarios.
  • Day 1 Buy Total Stock in Roth IRA

    Day 3 Sell all Total Stock in Roth IRA

    Day 4 Sell Total Stock in taxable at a loss....while holding Total Stock in a separate IRA
I think if all the shares of the Total Stock in the separate IRA were bought before the wash sale period, there is no wash sale. The IRAs are physically separate so there is no possibility that the shares in the second IRA are replacement shares for the ones sold in taxable.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by elgob » Wed Mar 25, 2020 11:38 am

retiredjg wrote:
Tue Mar 24, 2020 11:29 am
Karl A wrote:
Tue Mar 24, 2020 10:26 am
Assuming it had not yet been 30 days since the OP bought total stock in Roth IRA. Then the OP sells all total stock in IRA for 500 index. Then the next day OP sells total stock in taxable for 500 index. Wouldn't it still be a wash sale because the OP bought total stock in Roth within 30 days of selling total stock in taxable?
I don't think so because there are no "replacement shares" for the total stock sold from the taxable account at a loss. What would have been replacement shares do not exist any more because you sold them before selling the total stock at a loss.

Think of it this way. To have a wash sale, two things must apply.
  • You have to sell something in a taxable account at a loss.

    And you still have to hold (somewhere) shares of that same something that were bought during the wash sale period (either 30 days before or 30 days after the sale for which you took the loss). In other words, you have to have replaced or pre-replaced what you sold at a loss.
Trying to figure out what authority supports the highlighted point. I don't really see support for it in the language of the Internal Revenue Code (26 U.S. Code § 1091), in the Regs (26 CFR § 1.1091-1 and the following sections), in the Revenue Ruling dealing with IRAs (2008-5), or in IRS Publication 550. Any help?

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Wed Mar 25, 2020 11:59 am

elgob wrote:
Wed Mar 25, 2020 11:38 am
Trying to figure out what authority supports the highlighted point. I don't really see support for it in the language of the Internal Revenue Code (26 U.S. Code § 1091), in the Regs (26 CFR § 1.1091-1 and the following sections), in the Revenue Ruling dealing with IRAs (2008-5), or in IRS Publication 550. Any help?
It's under the "Wash Sales Rules" section, in IRS Publication 550, page 56.
https://www.irs.gov/pub/irs-pdf/p550.pdf
Wash Sales
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
The last paragraph clearly conveys that the basis from the "wash-sale" sold securities transfers to the replacement shares. If there are no replacement shares, then it is clear that there is no wash-sale.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by elgob » Wed Mar 25, 2020 12:28 pm

lakpr wrote:
Wed Mar 25, 2020 11:59 am
elgob wrote:
Wed Mar 25, 2020 11:38 am
Trying to figure out what authority supports the highlighted point. I don't really see support for it in the language of the Internal Revenue Code (26 U.S. Code § 1091), in the Regs (26 CFR § 1.1091-1 and the following sections), in the Revenue Ruling dealing with IRAs (2008-5), or in IRS Publication 550. Any help?
It's under the "Wash Sales Rules" section, in IRS Publication 550, page 56.
https://www.irs.gov/pub/irs-pdf/p550.pdf
Wash Sales
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
The last paragraph clearly conveys that the basis from the "wash-sale" sold securities transfers to the replacement shares. If there are no replacement shares, then it is clear that there is no wash-sale.
Not in the IRA situation. The first sentence of the last paragraph expressly excludes the IRA situation from the principle that the disallowed loss is added to the cost of the new stock or securities. That being the case, it doesn't really follow that if there are no replacement shares still held, the wash sale rule is called off.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by hulburt1 » Wed Mar 25, 2020 12:31 pm

I know nothing. I sold Facebook at a big win bought at 50 sold at 199. I want to buy now and sell at the end of the day. is this a wash sell. There in my Roth and Ira. I no this is a nono here.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Wed Mar 25, 2020 1:01 pm

elgob wrote:
Wed Mar 25, 2020 11:38 am
Trying to figure out what authority supports the highlighted point. I don't really see support for it in the language of the Internal Revenue Code (26 U.S. Code § 1091), in the Regs (26 CFR § 1.1091-1 and the following sections), in the Revenue Ruling dealing with IRAs (2008-5), or in IRS Publication 550. Any help?
Well, in looking to the legal codes you've gone to the right sources. Purists will note that even the IRS guidance publications cannot be trusted for accuracy or completeness — or even for not being outright misleading — and the code is what prevails. But you're a better reader than me if you can determine with any confidence whatsoever what they say.

With my limited comprehension of legal text, I tend to rely on finance or tax professionals as a necessary complement to the IRS publications to sort out the tax laws.

One such source I've come to rely on quite a bit for its easy accessibility and apparent authority is the guidance at Fairmark.com, written by a tax attorney. One of several summary pages, here is a page devoted to explaining the concept of "replacement shares," Wash Sales and Replacement Stock. The author doesn't cite the rulings explicitly, but he relies on rulings whenever available, and it appears that he stays current. In many circumstances, there are no rulings, and the code is ambiguous. So we are all left to interpret the law as best we can.

Hopefully, the summary page will help you to conceptualize the concept of replacement shares, even if it will not point you directly to the parts of the code or specific rulings that apply.

One more observation: whenever the mechanics of the wash sale rule get too confusing or convoluted, I find it helps greatly to keep in mind why it is, exactly, that the wash sale rule was written:
The "purpose of the wash sales provisions is to prevent tax manipulation by a taxpayer who attempts to recognize a loss on the sale of 'securities' while maintaining an identical or nearly identical investment position."
— I.R.S. Gen. Couns. Mem. 38,369 (May 9, 1980)

When I read that, it seems rather obvious that if I don't "maintain" the same or nearly identical investment position — subject, of course, to the qualification of timing as defined by the wash sale period — I'm not violating the intent of the rule. This isn't foolproof in determining compliance with the law; the IRS publications and/or court rulings are not always logical. But it's a great place to start.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by elgob » Wed Mar 25, 2020 1:37 pm

iceport wrote:
Wed Mar 25, 2020 1:01 pm
One such source I've come to rely on quite a bit for its easy accessibility and apparent authority is the guidance at Fairmark.com, written by a tax attorney. One of several summary pages, here is a page devoted to explaining the concept of "replacement shares," Wash Sales and Replacement Stock. The author doesn't cite the rulings explicitly, but he relies on rulings whenever available, and it appears that he stays current. In many circumstances, there are no rulings, and the code is ambiguous. So we are all left to interpret the law as best we can.
Thanks. I've read the discussion on that page before, and am always puzzled by his discussion under heading #5. He says:
My feeling is that the wash sale rule should never apply if the “replacement” shares were bought at the same time as, or earlier than, the shares that were sold. There isn’t any opportunity for abusive tax planning in this situation. But the issue is in doubt because the IRS has issued a ruling that, in my opinion, is erroneous.
Given that the statute itself expressly applies to shares bought earlier than the shares that were sold, I don't know how he can reach the conclusion that this is erroneous.
iceport wrote:
Wed Mar 25, 2020 1:01 pm
One more observation: whenever the mechanics of the wash sale rule get too confusing or convoluted, I find it helps greatly to keep in mind why it is, exactly, that the wash sale rule was written:
The "purpose of the wash sales provisions is to prevent tax manipulation by a taxpayer who attempts to recognize a loss on the sale of 'securities' while maintaining an identical or nearly identical investment position."
— I.R.S. Gen. Couns. Mem. 38,369 (May 9, 1980)
This is interesting. I haven't been able to locate that Memorandum online, to see that quote in context and the authority it relies on.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by itgeek » Wed Mar 25, 2020 1:47 pm

I am still bit confused with the final outcome in this thread. I am in the similar boat and neat to effectuate a TLH.

1) I bought VTSAX in Roth IRA about 1-week ago. I have now exchanged that to VFIAX based on learning from this thread.
2) I also bought VTSAX in my taxable account in last 30-days.
3) I have accumulated loss in many lots of VTSAX in my taxable account.
4) I am now planning to sell ALL of the VTSAX in taxable and transition to VLCAX (large cap). VLCAX is not owned in any of my account at this time.

Do I trigger wash sale?

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Wed Mar 25, 2020 1:56 pm

itgeek wrote:
Wed Mar 25, 2020 1:47 pm
I am still bit confused with the final outcome in this thread. I am in the similar boat and neat to effectuate a TLH.

1) I bought VTSAX in Roth IRA about 1-week ago. I have now exchanged that to VFIAX based on learning from this thread.
2) I also bought VTSAX in my taxable account in last 30-days.
3) I have accumulated loss in many lots of VTSAX in my taxable account.
4) I am now planning to sell ALL of the VTSAX in taxable and transition to VLCAX (large cap). VLCAX is not owned in any of my account at this time.

Do I trigger wash sale?
No. After you sell ALL of the VTSAX in taxable, you don't own VTSAX anywhere, right ? There are no more "replacement shares", that were bought in the preceding 30 days. Of course, the "No" answer is also assuming that you won't buy VTSAX again for the next 30 days either.

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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Wed Mar 25, 2020 2:05 pm

elgob wrote:
Wed Mar 25, 2020 1:37 pm
iceport wrote:
Wed Mar 25, 2020 1:01 pm
One such source I've come to rely on quite a bit for its easy accessibility and apparent authority is the guidance at Fairmark.com, written by a tax attorney. One of several summary pages, here is a page devoted to explaining the concept of "replacement shares," Wash Sales and Replacement Stock. The author doesn't cite the rulings explicitly, but he relies on rulings whenever available, and it appears that he stays current. In many circumstances, there are no rulings, and the code is ambiguous. So we are all left to interpret the law as best we can.
Thanks. I've read the discussion on that page before, and am always puzzled by his discussion under heading #5. He says:
My feeling is that the wash sale rule should never apply if the “replacement” shares were bought at the same time as, or earlier than, the shares that were sold. There isn’t any opportunity for abusive tax planning in this situation. But the issue is in doubt because the IRS has issued a ruling that, in my opinion, is erroneous.
Given that the statute itself expressly applies to shares bought earlier than the shares that were sold, I don't know how he can reach the conclusion that this is erroneous.
It is a bit like studying an Echer print... :-? I think a clue to his reasoning, and an example of potential for abuse in purchasing replacement stock in the 30 days prior to realizing the loss, is contained in Example 3. It seems what he is saying is that the potential for hedging the price movements doesn't exist if the replacement shares are not bought after the shares with losses were bought. It's a moot point; a ruling has upheld a contrary interpretation, whether accidental or not.
elgob wrote:
Wed Mar 25, 2020 1:37 pm
iceport wrote:
Wed Mar 25, 2020 1:01 pm
One more observation: whenever the mechanics of the wash sale rule get too confusing or convoluted, I find it helps greatly to keep in mind why it is, exactly, that the wash sale rule was written:
The "purpose of the wash sales provisions is to prevent tax manipulation by a taxpayer who attempts to recognize a loss on the sale of 'securities' while maintaining an identical or nearly identical investment position."
— I.R.S. Gen. Couns. Mem. 38,369 (May 9, 1980)
This is interesting. I haven't been able to locate that Memorandum online, to see that quote in context and the authority it relies on.
Me neither. The tax code and court rulings evade me in more than one way!

I found the reference in Footnote 47 of this legal review by Garrett M. Fischer, Washington University School of Law:

New Twists on an Old Plot: Investors Look to Avoid the Wash Sale Rule by Harvesting Tax Losses with Exchange-Traded Funds

A similar description of the intent is contained in a 1939 Third Circuit court ruling in Hanlin v. Commissioner, as cited in Footnote 146.
Last edited by iceport on Wed Mar 25, 2020 2:13 pm, edited 1 time in total.
"Discipline matters more than allocation.” ─William Bernstein

itgeek
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by itgeek » Wed Mar 25, 2020 2:07 pm

lakpr wrote:
Wed Mar 25, 2020 1:56 pm
itgeek wrote:
Wed Mar 25, 2020 1:47 pm
I am still bit confused with the final outcome in this thread. I am in the similar boat and neat to effectuate a TLH.

1) I bought VTSAX in Roth IRA about 1-week ago. I have now exchanged that to VFIAX based on learning from this thread.
2) I also bought VTSAX in my taxable account in last 30-days.
3) I have accumulated loss in many lots of VTSAX in my taxable account.
4) I am now planning to sell ALL of the VTSAX in taxable and transition to VLCAX (large cap). VLCAX is not owned in any of my account at this time.

Do I trigger wash sale?
No. After you sell ALL of the VTSAX in taxable, you don't own VTSAX anywhere, right ? There are no more "replacement shares", that were bought in the preceding 30 days. Of course, the "No" answer is also assuming that you won't buy VTSAX again for the next 30 days either.
Thanks lakpr.
I will still own bit of "VTSAX" in my wife's taxable account but it was not bought in last 30-days. That has a small gain on it. I can transfer that to VLCAX as well if so required.

elgob
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by elgob » Wed Mar 25, 2020 2:16 pm

lakpr wrote:
Wed Mar 25, 2020 1:56 pm
itgeek wrote:
Wed Mar 25, 2020 1:47 pm
I am still bit confused with the final outcome in this thread. I am in the similar boat and neat to effectuate a TLH.

1) I bought VTSAX in Roth IRA about 1-week ago. I have now exchanged that to VFIAX based on learning from this thread.
2) I also bought VTSAX in my taxable account in last 30-days.
3) I have accumulated loss in many lots of VTSAX in my taxable account.
4) I am now planning to sell ALL of the VTSAX in taxable and transition to VLCAX (large cap). VLCAX is not owned in any of my account at this time.

Do I trigger wash sale?
No. After you sell ALL of the VTSAX in taxable, you don't own VTSAX anywhere, right ? There are no more "replacement shares", that were bought in the preceding 30 days. Of course, the "No" answer is also assuming that you won't buy VTSAX again for the next 30 days either.
It's unclear, it seems to me, that the highlighted point is relevant under the language of the statute, regs, or IRS Pub 550 (none of which, for example, refers to "replacement shares", or deals with a disposition of those previously purchased shares). Under the statutory language, it seems that you would have a wash sale on the number of VTSAX shares sold equal to the number of VTSAX shares bought in the preceding 30 days. I realize that most others in this thread take a different view, and they might well be right. I just haven't seen the authority to support it.

lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by lakpr » Wed Mar 25, 2020 2:18 pm

itgeek wrote:
Wed Mar 25, 2020 2:07 pm
Thanks lakpr.
I will still own bit of "VTSAX" in my wife's taxable account but it was not bought in last 30-days. That has a small gain on it. I can transfer that to VLCAX as well if so required.
Check that position, VTSAX declared a dividend yesterday, and if your wife has set that dividend to be reinvested automatically, it would settle today and buy you additional shares of VTSAX which CAN be deemed as replacement shares. If you want to avoid that, you need to sell VTSAX in your wife's account also first, wait a day, and only then do the tax-loss harvesting.

itgeek
Posts: 33
Joined: Sun Dec 08, 2013 11:45 pm

Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by itgeek » Wed Mar 25, 2020 2:22 pm

lakpr wrote:
Wed Mar 25, 2020 2:18 pm
itgeek wrote:
Wed Mar 25, 2020 2:07 pm
Thanks lakpr.
I will still own bit of "VTSAX" in my wife's taxable account but it was not bought in last 30-days. That has a small gain on it. I can transfer that to VLCAX as well if so required.
Check that position, VTSAX declared a dividend yesterday, and if your wife has set that dividend to be reinvested automatically, it would settle today and buy you additional shares of VTSAX which CAN be deemed as replacement shares. If you want to avoid that, you need to sell VTSAX in your wife's account also first, wait a day, and only then do the tax-loss harvesting.
Bit of clarification.
* VTSAX is currently owned in 2 taxable accounts (one joint, one in wife's name). One of that account has a major accumulated loss (>$500K, 2 days back :happy ). Other one has a gain ($50K). I was hoping to sell only the account which has losses.
* There is no auto-reinvestment. I collect dividends in settlement account.

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iceport
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Re: Sell all shares in Roth IRA to avoid a wash sale?

Post by iceport » Wed Mar 25, 2020 2:24 pm

elgob wrote:
Wed Mar 25, 2020 2:16 pm
lakpr wrote:
Wed Mar 25, 2020 1:56 pm
itgeek wrote:
Wed Mar 25, 2020 1:47 pm
I am still bit confused with the final outcome in this thread. I am in the similar boat and neat to effectuate a TLH.

1) I bought VTSAX in Roth IRA about 1-week ago. I have now exchanged that to VFIAX based on learning from this thread.
2) I also bought VTSAX in my taxable account in last 30-days.
3) I have accumulated loss in many lots of VTSAX in my taxable account.
4) I am now planning to sell ALL of the VTSAX in taxable and transition to VLCAX (large cap). VLCAX is not owned in any of my account at this time.

Do I trigger wash sale?
No. After you sell ALL of the VTSAX in taxable, you don't own VTSAX anywhere, right ? There are no more "replacement shares", that were bought in the preceding 30 days. Of course, the "No" answer is also assuming that you won't buy VTSAX again for the next 30 days either.
It's unclear, it seems to me, that the highlighted point is relevant under the language of the statute, regs, or IRS Pub 550 (none of which, for example, refers to "replacement shares", or deals with a disposition of those previously purchased shares). Under the statutory language, it seems that you would have a wash sale on the number of VTSAX shares sold equal to the number of VTSAX shares bought in the preceding 30 days. I realize that most others in this thread take a different view, and they might well be right. I just haven't seen the authority to support it.
Think of it this way: By disposing of any replacement shares — defined as being purchased within the 61-day wash sale period — your "economic position" reverts to what it was prior to the wash sale period. Then, by selling at a loss in taxable, your economic position with respect to that fund does indeed change. That is the test of whether or not the loss washes with other purchases. It only becomes a wash if you find a way to book the loss without changing your economic position. Without replacement shares, the loss is not fictional, it's real. The law does not prevent one from claiming a real loss.
Last edited by iceport on Wed Mar 25, 2020 2:25 pm, edited 1 time in total.
"Discipline matters more than allocation.” ─William Bernstein

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