Wash Sale rules help

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bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Wash Sale rules help

Post by bobsmith » Mon Sep 10, 2018 1:42 pm

I've got mutual fund ABC inside a taxable account using specified ID accounting. Let's say I sell some shares of this fund and generate $1,000 in realized loss (both short and long). Now, I'd like to avoid a wash sale.

So, for 30 days I cannot buy back into the same fund. That's a true 30 days on the calendar weekends and holidays included, right?

With regards to this newly generated realized loss, past sales don't matter, right? (It wouldn't matter if a week ago I sold the same fund for a realized gain, for example) Right?

This means I must change my fund settings so that it will not gains into itself, correct?

Next, I hold this same fund inside a roth account, so I must change that fund's setting to NOT reinvest in itself, correct?

Finally, I have an active 403b account (traditional) which is set to receive a set amount from my paycheck. Currently, it's set to invest in fund ABC so I need to change that for 30 days as well, right?

Anything else I'm missing with regards to wash sales?

EDIT: ABC Fund is actually Vanguard's Total International Stock Index Fund. In years past, this fund only has a distribution in March, June, Sept, and December, usually between the 20th and 26th of the month. If I wait for the September 20-26th distribution and THEN sell for a realized loss, how confident can I be that there won't be REINIVESTMENT issues until December (or for at least 30 days)? I actually hold this fund all by itself in multiple retirement accounts so to change the reinvestment directive I'd also have to create a new fund for it to dump into which creates a lot of extra work.

terran
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Re: Wash Sale rules help

Post by terran » Mon Sep 10, 2018 3:09 pm

Correct, you'll need to turn off reinvested dividends and automatic investments.

I've seen some people say that since the IRS specifically said an IRA can cause a wash sale, but said nothing about a 401(k) that investments in a 401(k) don't cause a wash sale, but that's not a risk I'm interested in taking.

It is 30 calendar days, so you don't need to worry about holidays, etc. However it's 30 days both before and after the sale that generated the loss, so waiting until dividends post and then selling won't work unless you also sell the shares bought with dividends (assuming you're tracking with specific identification).

See https://www.bogleheads.org/wiki/Wash_sale

bobsmith
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Re: Wash Sale rules help

Post by bobsmith » Mon Sep 10, 2018 3:23 pm

Thanks for the help and info!
I've seen some people say that since the IRS specifically said an IRA can cause a wash sale, but said nothing about a 401(k) that investments in a 401(k) don't cause a wash sale, but that's not a risk I'm interested in taking.
It sure would be nice if the IRS made this clarification official. It's been quite some time that it's been left unclear.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash Sale rules help

Post by rkhusky » Tue Sep 11, 2018 5:24 am

bobsmith wrote:
Mon Sep 10, 2018 3:23 pm
Thanks for the help and info!
I've seen some people say that since the IRS specifically said an IRA can cause a wash sale, but said nothing about a 401(k) that investments in a 401(k) don't cause a wash sale, but that's not a risk I'm interested in taking.
It sure would be nice if the IRS made this clarification official. It's been quite some time that it's been left unclear.
The revenue ruling is quite clear that it is only concerned with IRA's and even says at the end that nothing further should be inferred from it. The IRS has provided nothing that would indicate that any particular account type is exempt from the wash sale rules. The one time it was asked about an account type (IRA), it said that it was not exempt. Can't be much clearer than that.

bobsmith
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Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 11:22 am

One follow up question, then some Wonk fun for Vanguard users....

Say I sell fund ABC inside a taxable account for a realized loss of $1,000. I own the same fund inside my IRA. 20 days later, that ABC Fund inside my IRA gets a dividend of $100 which is reinvested into Fund ABC, so essentially I made a $100 purchase of that same fund (inside my IRA). I know that constitutes a wash sale. However, I'm not sure how that $100 effects the $1,000. Can someone explain? Also, I'm not sure how that's reported to the IRS because although Vanguard holds both of these accounts (IRA and Taxable) I don't think they keep track of or report this on their 1099 when it crosses over into an IRA. I'm avoiding this situation from occurring, but I'm curious to know how it would pan out and how I'd have to report it.


Okay, here's the Wonkiness for those who care to know which mostly applies to anyone who's got the old mutual fund accounts and hasn't yet converted to the brokerage account...

I hold a taxable account and an IRA with Vanguard. Inside each account I own the mutual fund, Vanguard Total International Stock Market Index (VISMI). Selling or exchanging fund inside the IRA would generate a realized gain (howbeit inside an IRA). Selling the fund in the taxable account creates a realized loss. Vanguard has not make any distributions for this fund for at least the last 31 days. My intention was to sell part of this fund inside my taxable account to harvest a loss, but before I could do that I wanted to make sure there wasn't a problem with distributions from this fund, which are expected to occur in a couple weeks (9-20 to 9-26). Therefore, inside my taxable account, I changed my option for the fund to have the dividends and gains reinvest into a different non-international fund that I hold in the same account. No problem. However, when I went to do the same thing inside my IRA account, there was a problem. You see, the ONLY fund I hold inside my IRA is the VISMI fund. So, I could not redirect the gains/dividends and gains to go into a different fund. I could create a different fund inside the IRA, but to fund it I would have to take away from VISMI which would generate a realized gain, preventing me from selling the same fund inside my taxable account for 30 days. Because I'd already maxed out my IRA contribution for 2018, that also eliminated the option for new money going into the account to create a fund for the gains/dividends to dump into.

So I called Vanguard. The rep created the Prime MM fund for me with a zero balance so the future dividends would have a place to land. No good. Vanguard will not allow options for gains/dividends to invest into a different fund if the different fund has a zero balance. The rep then explained that we could set up a different zero balance MM fund for the gains/dividends to dump into, but that this MM fund was only available inside a brokerage account. He said he could convert my account, but once he did I could never go back. With my mutual fund account I can either reinvest gains/dividends into the same fund, or I divert my gains/dividends into any other fund. With a brokerage account, my future options would be to either reinvest or divert gains/dividends into the brokerage MM fund (also known as a settlement fund). I didn't want to lose that option, and frankly, I wasn't all that confident I was really going to be able to divert the gains/dividends into the newly created brokerage MM fund, despite the rep's assurances. (He'd be wrong before). So I decided against converting to a brokerage account.

The only lesson, if there is one for someone in such a perfect storm like this, is to try to keep more than one fund available inside your IRA.

What I ultimately decided to do was this.... inside my IRA I (today) exchanged some of the VISMI into a different newly created fund, generating a realized gain inside my IRA for VISMI. Then, I set my VISMI fund inside my IRA to direct the gains/dividends to this newly created fund. Strangely, Vangaurd through their website had no problem setting this up despite the fact that the new fund currently has a zero balance, although the exchange creating and funding this new fund has already occurred and is irreversible. (I already setup VISMI inside my taxable account to send gains/dividends to a different account. ) Now I just have to wait 31 days after this exchange within my IRA to harvest my loss, then wait another 31 days to reset my reinvestment options.

However, as it turns out, I also hold VISMI inside another account held with a different institution. This account is a 401k Roth. This institution does not allow me to redirect the gains/dividends to any other fund except itself. My only option there would be to sell 100% of this fund and get into something else, but that would really mess up my allocation. So what I'm doing instead is just leaving it the way it is. For the rest of 2018, any contributions to this account will go to a different non-international fund. But, for VISMI inside this 401k Roth, I'll still have the problem of distributions received later this month (9-20 to 9-26). Sooooo.... my plan is to wait for the distribution and note the date, then wait 31 days and THEN harvest the loss inside my taxable account (or whatever's left of the loss to harvest). This will happen around the end of October. Then, 31 days after that, around the end of November, if I want to, I can reset the reinvestment options or make other allocation changes. This only works if Vanguard sticks to its traditional gains/distribution schedule for this fund which tends to occur March, June, Sept, and Dec. I'm counting on that to be what it's always been. If not, the I guess I'll just have to deal with the IRS problem of having gains inside a retirement account washing out a realized loss inside a taxable account.

I gotta say, this is a lot of ******** and I'l have to go through it anytime I want to sell a fund for a realized loss inside my taxable account. If I understand thing correctly, it's not that the gains/dividends would have such big impact on harvesting the loss. It's the hassle of having to keep track of it and reporting it properly.

Anyway, this is how I've decided to handle this problem. For anyone that made it this far and has found a problem with my logic, let me know. Otherwise I now have a plan.

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

Re: Wash Sale rules help

Post by nolesrule » Tue Sep 11, 2018 11:35 am

From Publication 550 (2017)
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 account (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.
If it applies to all retirement account types, that makes Line 4 redundant. Conversely, they could have included all tax-advantaged retirement accounts in Line 4 if that is the IRS intent.

Furthermore the the final paragraph explains what to do with the disallowed loss, which apparently allows you to add basis to your non-IRA tax-advantaged plan if that is the account holding replacement shares, since the exclusion for adjusting the basis is only on accounts listed in Line 4. Talk about a basis paperwork nightmare.

bobsmith
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Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 11:55 am

Furthermore the the final paragraph explains what to do with the disallowed loss, which apparently allows you to add basis to your non-IRA tax-advantaged plan if that is the account holding replacement shares, since the exclusion for adjusting the basis is only on accounts listed in Line 4. Talk about a basis paperwork nightmare.
Hmm... I'm trying to understand this with an example. Let's take my my hypothetical example of actually generating $1,000 in loss (inside my taxable account) by selling Fund ABC and then buying $100 worth of Fund ABC inside my Roth IRA (by way of a reinvested gain/dividend).

I would lose the ability use use 100% of my $1,000 realized gain? Not just some portion of it....? And then I'd have to keep my own records for that to report to the IRS when need? (Because I'm sure Vanguard isn't going to keep track of this for me)? Can anyone use my hypothetical to specifically describe what would happen?

I'm just a simple index investor who only uses mutual funds and manages his own investments. I don't keep my own records and only started taking advantage of Specified ID after Vanguard started keep track of it for me. It's crazy to think I'm going to have to go through this much hassle every time I sell any of my taxable funds for a loss.

nolesrule
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Re: Wash Sale rules help

Post by nolesrule » Tue Sep 11, 2018 12:09 pm

The disallowed loss is in proportion to the number of replacement shares purchased.

You don't need to track any basis changes in your IRAs (per Pub 550) because the loss is permanent.

rkhusky
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Re: Wash Sale rules help

Post by rkhusky » Tue Sep 11, 2018 12:55 pm

bobsmith wrote:
Tue Sep 11, 2018 11:22 am
One follow up question, then some Wonk fun for Vanguard users....

Say I sell fund ABC inside a taxable account for a realized loss of $1,000. I own the same fund inside my IRA. 20 days later, that ABC Fund inside my IRA gets a dividend of $100 which is reinvested into Fund ABC, so essentially I made a $100 purchase of that same fund (inside my IRA). I know that constitutes a wash sale. However, I'm not sure how that $100 effects the $1,000. Can someone explain?
You have a wash sale of $100, which you cannot recover because replacement shares are within a tax-advantaged account. You can claim a $900 loss.
bobsmith wrote:
Tue Sep 11, 2018 11:22 am
So I called Vanguard. The rep created the Prime MM fund for me with a zero balance so the future dividends would have a place to land. No good. Vanguard will not allow options for gains/dividends to invest into a different fund if the different fund has a zero balance. The rep then explained that we could set up a different zero balance MM fund for the gains/dividends to dump into, but that this MM fund was only available inside a brokerage account. He said he could convert my account, but once he did I could never go back. With my mutual fund account I can either reinvest gains/dividends into the same fund, or I divert my gains/dividends into any other fund. With a brokerage account, my future options would be to either reinvest or divert gains/dividends into the brokerage MM fund (also known as a settlement fund). I didn't want to lose that option, and frankly, I wasn't all that confident I was really going to be able to divert the gains/dividends into the newly created brokerage MM fund, despite the rep's assurances. (He'd be wrong before). So I decided against converting to a brokerage account.
Seems like someone at Vanguard would have authority to manually override and permit the direction of dividends to a zero balance account. Or they would have the authority to manually allow you to transfer $1 to Prime MM.
bobsmith wrote:
Tue Sep 11, 2018 11:22 am

What I ultimately decided to do was this.... inside my IRA I (today) exchanged some of the VISMI into a different newly created fund, generating a realized gain inside my IRA for VISMI. Then, I set my VISMI fund inside my IRA to direct the gains/dividends to this newly created fund. Strangely, Vangaurd through their website had no problem setting this up despite the fact that the new fund currently has a zero balance, although the exchange creating and funding this new fund has already occurred and is irreversible. (I already setup VISMI inside my taxable account to send gains/dividends to a different account. ) Now I just have to wait 31 days after this exchange within my IRA to harvest my loss, then wait another 31 days to reset my reinvestment options.
Why do you have to wait 31 days? You sold VISMI and you would be selling VISMI in your taxable account, right? There would only be a wash sale if you bought VISMI in your IRA and sold VISMI for a loss in your taxable account.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash Sale rules help

Post by rkhusky » Tue Sep 11, 2018 1:04 pm

bobsmith wrote:
Tue Sep 11, 2018 11:22 am
However, as it turns out, I also hold VISMI inside another account held with a different institution. This account is a 401k Roth. This institution does not allow me to redirect the gains/dividends to any other fund except itself. My only option there would be to sell 100% of this fund and get into something else, but that would really mess up my allocation. So what I'm doing instead is just leaving it the way it is. For the rest of 2018, any contributions to this account will go to a different non-international fund. But, for VISMI inside this 401k Roth, I'll still have the problem of distributions received later this month (9-20 to 9-26). Sooooo.... my plan is to wait for the distribution and note the date, then wait 31 days and THEN harvest the loss inside my taxable account (or whatever's left of the loss to harvest). This will happen around the end of October. Then, 31 days after that, around the end of November, if I want to, I can reset the reinvestment options or make other allocation changes. This only works if Vanguard sticks to its traditional gains/distribution schedule for this fund which tends to occur March, June, Sept, and Dec. I'm counting on that to be what it's always been. If not, the I guess I'll just have to deal with the IRS problem of having gains inside a retirement account washing out a realized loss inside a taxable account.
How big do you expect the distribution to be in comparison to your loss? If it is a small fraction, then you could just accept the wash sale and take the loss on the rest.
Otherwise, you should be able to easily move your VISMI to some other fund for a week or so, and then move back once the distribution is past. There is no tax implication. Sure, it might change your AA for a short time, but is it really that important? Surely, there is a replacement that would be close enough - total US or S&P 500 or different int'l fund. You could even move into a bond fund or a MM.

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 1:30 pm

How big do you expect the distribution to be in comparison to your loss? If it is a small fraction, then you could just accept the wash sale and take the loss on the rest.
Yes, it's a small fraction. My confusion is with what it means to "accept the wash" and how to file it. I think you've helped answer this above, but please offer more clarification if you think it's necessary. If I can simply instruct my tax guy to offset the amount in his head and simply claim less loss, then seems like an easy enough way forward.

Otherwise, you should be able to easily move your VISMI to some other fund for a week or so, and then move back once the distribution is past. There is no tax implication. Sure, it might change your AA for a short time, but is it really that important? Surely, there is a replacement that would be close enough - total US or S&P 500 or different int'l fund. You could even move into a bond fund or a MM.
Please skip to the next post. It's my fault for responding out of order, but I've spoke to this already and await your clarification. While I have no concern over the AA consequences, selling any portion of VISMI inside my Roth IRA will generate a realized gain and will therefore trigger a wash with any loss created by selling this fund inside my taxable account.
Last edited by bobsmith on Tue Sep 11, 2018 2:05 pm, edited 3 times in total.

bobsmith
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Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 1:55 pm

rkhusky wrote:
Tue Sep 11, 2018 12:55 pm
bobsmith wrote:
Tue Sep 11, 2018 11:22 am
One follow up question, then some Wonk fun for Vanguard users....

Say I sell fund ABC inside a taxable account for a realized loss of $1,000. I own the same fund inside my IRA. 20 days later, that ABC Fund inside my IRA gets a dividend of $100 which is reinvested into Fund ABC, so essentially I made a $100 purchase of that same fund (inside my IRA). I know that constitutes a wash sale. However, I'm not sure how that $100 effects the $1,000. Can someone explain?
You have a wash sale of $100, which you cannot recover because replacement shares are within a tax-advantaged account. You can claim a $900 loss.
Okay, so even though I might have sold $5,000 worth of shares to generate a $1,000 loss, each dollar I use to simply purchase that fund again (within 31 days), counts directly against the thousand. Using this same hypothetical... I don't know that Vanguard will report the wash specifically because it's occurring over two accounts (taxable and IRA). So in this case, would I simply instruct my tax guy to simply report $900 instead of $1,000 with no further paperwork?
bobsmith wrote:
Tue Sep 11, 2018 11:22 am
So I called Vanguard. The rep created the Prime MM fund for me with a zero balance so the future dividends would have a place to land. No good. Vanguard will not allow options for gains/dividends to invest into a different fund if the different fund has a zero balance. The rep then explained that we could set up a different zero balance MM fund for the gains/dividends to dump into, but that this MM fund was only available inside a brokerage account. He said he could convert my account, but once he did I could never go back. With my mutual fund account I can either reinvest gains/dividends into the same fund, or I divert my gains/dividends into any other fund. With a brokerage account, my future options would be to either reinvest or divert gains/dividends into the brokerage MM fund (also known as a settlement fund). I didn't want to lose that option, and frankly, I wasn't all that confident I was really going to be able to divert the gains/dividends into the newly created brokerage MM fund, despite the rep's assurances. (He'd be wrong before). So I decided against converting to a brokerage account.
Seems like someone at Vanguard would have authority to manually override and permit the direction of dividends to a zero balance account. Or they would have the authority to manually allow you to transfer $1 to Prime MM.
Regarding "manually... permitting the dividends to go to a zero balance account"..... I was on the phone over an hour which at some point included a conversation with retirement account specialists while I waited on hold. No such option was offered. Regarding manually moving $1 to the Prime MM, that wasn't the issue. The problem was that the only way to fund the MM or anything else (inside my IRA) would require me selling off the one fund inside it, VISMI, which would have created a realized "gain" in the eyes of the IRS, despite the fact that the transaction occurred entirely inside a Roth IRA. Being it was an IRA (and my contributions were maxed for this year) there was also no option to bring outside money in.
bobsmith wrote:
Tue Sep 11, 2018 11:22 am

What I ultimately decided to do was this.... inside my IRA I (today) exchanged some of the VISMI into a different newly created fund, generating a realized gain inside my IRA for VISMI. Then, I set my VISMI fund inside my IRA to direct the gains/dividends to this newly created fund. Strangely, Vangaurd through their website had no problem setting this up despite the fact that the new fund currently has a zero balance, although the exchange creating and funding this new fund has already occurred and is irreversible. (I already setup VISMI inside my taxable account to send gains/dividends to a different account. ) Now I just have to wait 31 days after this exchange within my IRA to harvest my loss, then wait another 31 days to reset my reinvestment options.
Why do you have to wait 31 days? You sold VISMI and you would be selling VISMI in your taxable account, right? There would only be a wash sale if you bought VISMI in your IRA and sold VISMI for a loss in your taxable account.
Well when, inside my Roth IRA, I exchanged a portion of VISMI to create a new fund (for VISMI distributions to dump into), that created a realized gain inside my IRA. Of course that means nothing inside the IRA, but as I understand it, Uncle Sam will hold that against me if I create a realized loss with the same fund within 31 days which is exactly what I'm trying to do inside my taxable account with this fund.

bobsmith
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Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 2:22 pm

nolesrule wrote:
Tue Sep 11, 2018 12:09 pm
The disallowed loss is in proportion to the number of replacement shares purchased.
Number of SHARES? So if I sell $5,000 worth of shares at $10/share that means I sold 500 shares. Lets say I originally paid $12/share, meaning I just created a realized loss of $1,000. 20 days later I purchase 5 shares of the same fund which is now selling for $20/share, meaning I spend $100. Given these two transactions, how much realized loss can I report?
You don't need to track any basis changes in your IRAs (per Pub 550) because the loss is permanent.
Well, here's where I'm confused by your explanation no doubt because I'm not all that good at this sort of thing and I've been doing it all day.... So given what you described, there would be no need for me to make changes to the basis inside the taxable account where I sold the fund. I would simply have to adjust down my realized loss when reporting it, but I could still report most of the loss, right?

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

Re: Wash Sale rules help

Post by nolesrule » Tue Sep 11, 2018 2:42 pm

If you sell 500 shares with a $2 loss per share and you buy 5 replacement shares, the disregarded loss is only on the 5 shares that were replaced. 5 x $2 = $10.

The cost basis on your 5 replacement shares purchased at $20 each is increased by the same $2 each, so the new cost basis on the replacement shares is $22/share.

However, if the replacement shares are in an IRA, there is no cost basis to increase, so the disregarded loss is permanent. I left out the word "disregarded" in my previous post. My apologies if it caused confusion.

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 3:24 pm

nolesrule wrote:
Tue Sep 11, 2018 2:42 pm
If you sell 500 shares with a $2 loss per share and you buy 5 replacement shares, the disregarded loss is only on the 5 shares that were replaced. 5 x $2 = $10.

The cost basis on your 5 replacement shares purchased at $20 each is increased by the same $2 each, so the new cost basis on the replacement shares is $22/share.

However, if the replacement shares are in an IRA, there is no cost basis to increase, so the disregarded loss is permanent. I left out the word "disregarded" in my previous post. My apologies if it caused confusion.
First, thanks for sticking with me all this time... :)

Okay, so using my example above... So I sold 500 shares, for a loss of $2 each share. Because I bought 5 more shares, it's the same as if I sold 495 shares instead of 500. So the total realized loss I could report would be 495 X $2 = $990 (instead of $1,000). If I had bought those new 5 shares inside a taxable account, I'd record them as 5 shares purchased at $20 each, but for tax purposes I could record them as me having paid $22. But because the the purchase was made inside an IRA account, the disregarded loss is permanent. Right?

So again, how would I actually report this on my taxes? Would it be as simple as reporting $990 instead of $1,000 with no further paperwork or explanation provided? And as for bookkeeping, because the wash was triggered by an event inside the IRA, there's nothing that can be done and therefore no adjustment to cost basis would be needed inside the IRA or anywhere else, right?

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash Sale rules help

Post by rkhusky » Tue Sep 11, 2018 4:01 pm

bobsmith wrote:
Tue Sep 11, 2018 1:55 pm
rkhusky wrote:
Tue Sep 11, 2018 12:55 pm
bobsmith wrote:
Tue Sep 11, 2018 11:22 am
One follow up question, then some Wonk fun for Vanguard users....

Say I sell fund ABC inside a taxable account for a realized loss of $1,000. I own the same fund inside my IRA. 20 days later, that ABC Fund inside my IRA gets a dividend of $100 which is reinvested into Fund ABC, so essentially I made a $100 purchase of that same fund (inside my IRA). I know that constitutes a wash sale. However, I'm not sure how that $100 effects the $1,000. Can someone explain?
You have a wash sale of $100, which you cannot recover because replacement shares are within a tax-advantaged account. You can claim a $900 loss.
Okay, so even though I might have sold $5,000 worth of shares to generate a $1,000 loss, each dollar I use to simply purchase that fund again (within 31 days), counts directly against the thousand. Using this same hypothetical... I don't know that Vanguard will report the wash specifically because it's occurring over two accounts (taxable and IRA). So in this case, would I simply instruct my tax guy to simply report $900 instead of $1,000 with no further paperwork?
Sorry, I was too quick to respond. "nolesrule" is correct that the wash needs to be figured on a per share basis. Then the number of replacement shares cancel some of the shares sold for a loss.

If you bought 1000 shares at $5/sh for a total of $5000. If the price dropped to $4/sh, you would have a $1000 loss. If you bought $100 worth of replacement shares at $5/sh, that would be 20 shares and therefore $20 of your loss would be disallowed. If the price of the replacement shares was $4/sh, that would be 25 shares and so $25 of your loss would be disallowed (loss was $1/sh).

You would report the full sale and indicate on the form that there was a wash sale. There are instructions in the reporting forms for dealing with wash sales.
bobsmith wrote:
Tue Sep 11, 2018 1:55 pm
Regarding "manually... permitting the dividends to go to a zero balance account"..... I was on the phone over an hour which at some point included a conversation with retirement account specialists while I waited on hold. No such option was offered. Regarding manually moving $1 to the Prime MM, that wasn't the issue. The problem was that the only way to fund the MM or anything else (inside my IRA) would require me selling off the one fund inside it, VISMI, which would have created a realized "gain" in the eyes of the IRS, despite the fact that the transaction occurred entirely inside a Roth IRA. Being it was an IRA (and my contributions were maxed for this year) there was also no option to bring outside money in.
Selling within a tax-advantaged account doesn't trigger cap gains like it does in a taxable account. All you need to do is keep track of contributions and that is only for some special cases, such as when you make unqualified withdrawals from your account. If you don't make any unusual withdrawals, then there is no tax/penalty on Roth withdrawals and you pay your usual income tax without penalty on all Traditional withdrawals - you wouldn't even have to keep track of contributions or earnings (except if you made nondeductible contributions to a Traditional IRA).
bobsmith wrote:
Tue Sep 11, 2018 1:55 pm
Well when, inside my Roth IRA, I exchanged a portion of VISMI to create a new fund (for VISMI distributions to dump into), that created a realized gain inside my IRA. Of course that means nothing inside the IRA, but as I understand it, Uncle Sam will hold that against me if I create a realized loss with the same fund within 31 days which is exactly what I'm trying to do inside my taxable account with this fund.
There is no such thing as a realized gain/loss due to selling within an IRA. The wash sale would come from a purchase, either with a new contribution or because you bought new shares with a dividend or cap gain. You can exchange funds within an IRA to your hearts content with no tax consequence or reporting or bookkeeping.
Last edited by rkhusky on Tue Sep 11, 2018 6:18 pm, edited 1 time in total.

retiringwhen
Posts: 527
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Wash Sale rules help

Post by retiringwhen » Tue Sep 11, 2018 4:09 pm

There is a much simpler way to do this if you are willing to use different Funds.

1.) Our household has several IRAs of different ownership and type (8 to be exact) and 4 taxable brokerage accounts. Plus my 401(k).

2.) My 401(K) only allows synthetic 3-fund configurations, Index 500 (VOO) + Extended Market (VXF) and FTSE ex-US (VEU)

I only use the 401(k) options (as they are decent choices) in all the tax-deferred accounts adding FTSE ex-US SmallCap (VSS) in an appropriate portion to fill out the Internationals funds.

I Use the Total Stock (VTI) and Total International Funds (VXUS) in all three taxable accounts (and TLH to different funds as necessary, never using any of the 401(k)/IRA funds.

This way I only have to worry about TLH/wash issues on the 3 taxable accounts and I have dividend reinvestment turned off. This year I have done 2 TLH efforts on VXUS (actually in the sale part of the round trip for the second effort now.) with zero concern about wash sales in IRA/tax-deferred accounts (I wear suspenders too :!: , not really)

You can adjust this approach easily to your situation. Look at the fund choices made in the 401(K) and 403(b) and try to use them in the IRAs if you have to.

Also, obviously don't sell taxable funds to make any differentiation, instead restructure the tax-deferred fund choices away from the taxable funds you own to the extent possible.

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 5:22 pm

rkhusky,

Okay I think I finally understand how the wash works. Thanks!
You would report the full sale and indicate on the form that there was a wash sale. There are instructions in the reporting forms for dealing with wash sales.
Alright, I'll look into it. My tax guy knows nothing about this stuff so it's on me. Hopefully I can avoid a wash sale completely and not have to deal with any of the filing issues.
There is no such thing as a realized gain/loss due to selling within an IRA. The wash sale would come from a purchase, either with a new contribution or because you bought new shares with a dividend or cap gain. You can exchange funds within an IRA to your hearts content with no tax consequence or reporting or bookkeeping.
Okay, so it makes no difference what I paid for the shares inside the Roth IRA or whether I'm selling them for more or less than I paid for them. The whole issue is simply about acquiring new shares. Sorry it took so long, but I think this is finally sinking in. The Vanguard Rep I talked to (for almost an hour) had no understanding of this. Don't get me wrong. They offer good customer service, but are generally ignorant on tax issues.

Okay, so all I've done is exchanged from VISMI fund into a different fund which will be in place by tomorrow. For my taxable account and IRA, all gains and dividends that are created by my VISMI fund will go into other funds and NOT reinvest. If that was all there was to it, knowing I haven't purchased any shares of VISMI for at least a couple months, it's fair to say I could now harvest my loss and not do anything with VISMI for another 31 days. I think I've got that right so far.

Of course it's more complicated than that. As mentioned I also have a 401k account held with a different institution which will not allow me to do anything other than reinvest the funds into themselves. I don't want to sell 100% of those funds inside the 401ks because it's gonna mess up my AA and I don't really want to spend the time investigating and setting up and alternative fund to get into in the meantime, plus there's the rule about not investing in similar type funds which is exactly what I'd be interested in doing. Soooo.. I think I'll just assume Vanguard's going to do a distribution on or around the 24th and that they won't being doing another one until December. If I guess right, then no wash sale and I only have to tweak a few settings late this year with regard to gains/distributions. If wrong, then I guess I'll be messing with some more paperwork come April 2019.

Thanks for all the help!

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 5:39 pm

retiringwhen wrote:
Tue Sep 11, 2018 4:09 pm
There is a much simpler way to do this if you are willing to use different Funds.

1.) Our household has several IRAs of different ownership and type (8 to be exact) and 4 taxable brokerage accounts. Plus my 401(k).

2.) My 401(K) only allows synthetic 3-fund configurations, Index 500 (VOO) + Extended Market (VXF) and FTSE ex-US (VEU)

I only use the 401(k) options (as they are decent choices) in all the tax-deferred accounts adding FTSE ex-US SmallCap (VSS) in an appropriate portion to fill out the Internationals funds.

I Use the Total Stock (VTI) and Total International Funds (VXUS) in all three taxable accounts (and TLH to different funds as necessary, never using any of the 401(k)/IRA funds.

This way I only have to worry about TLH/wash issues on the 3 taxable accounts and I have dividend reinvestment turned off. This year I have done 2 TLH efforts on VXUS (actually in the sale part of the round trip for the second effort now.) with zero concern about wash sales in IRA/tax-deferred accounts (I wear suspenders too :!: , not really)

You can adjust this approach easily to your situation. Look at the fund choices made in the 401(K) and 403(b) and try to use them in the IRAs if you have to.

Also, obviously don't sell taxable funds to make any differentiation, instead restructure the tax-deferred fund choices away from the taxable funds you own to the extent possible.
Everything you say make sense, and of course I could make tax-consequence-free changes inside my retirement accounts. But alas, I am but a simple index investor who knows and trusts Vanguard and their funds. Luckily I have good access to vanguard funds within my retirement accounts as well. I could try to create the index using something other than Vans TSMI, but unfortunately, I already have Vans 500 index and vans extended market inside my taxable account which I bought around 2000 and they have too much unrealized gain for me to touch them. Anyway, I get what you're saying. It makes sense. I've only in the last few years caught on to using spec ID so the whole exercise of tax harvesting is still new to me. Surprisingly, I haven't gotten much help from Vanguard regarding how to create their TSMI using other Vanguard funds. Try asking them how to recreate the TSMI using the 500 index and extended market. I get a different answer each time I ask and it's never a confident answer. Bogleheads information on this over at wiki is quite dated and of course it always changes as the large and small cap ratio never quite stays the same.

However, it's my understanding that if the funds are similar but not the same and you buy more shares you might still be subjected to a wash rule. Also, I see the fund of funds you have access to don't include bonds. That's good. Even so, I like to be able to prioritize what goes in and out of retirement accounts in terms of international or US stocks.

rkhusky
Posts: 5711
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash Sale rules help

Post by rkhusky » Tue Sep 11, 2018 6:16 pm

bobsmith wrote:
Tue Sep 11, 2018 5:22 pm
I don't really want to spend the time investigating and setting up and alternative fund to get into in the meantime, plus there's the rule about not investing in similar type funds which is exactly what I'd be interested in doing.
The IRS terminology is "substantially identical", which I think is much closer than "similar". No one knows what it means because the IRS hasn't defined it. Some think Investor vs Admiral shares of the same Vanguard fund fit the definition. Others might be more conservative and say that two funds that track the same index might fit the definition. But if you are fine with your plan, it should work.

See form 8949 for instructions on reporting wash sales.

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Tue Sep 11, 2018 7:15 pm

Rkhusky & nolesrule :sharebeer

retiringwhen
Posts: 527
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Wash Sale rules help

Post by retiringwhen » Tue Sep 11, 2018 7:25 pm

bobsmith wrote:
Tue Sep 11, 2018 5:39 pm
retiringwhen wrote:
Tue Sep 11, 2018 4:09 pm
There is a much simpler way to do this if you are willing to use different Funds.

1.) Our household has several IRAs of different ownership and type (8 to be exact) and 4 taxable brokerage accounts. Plus my 401(k).

2.) My 401(K) only allows synthetic 3-fund configurations, Index 500 (VOO) + Extended Market (VXF) and FTSE ex-US (VEU)

I only use the 401(k) options (as they are decent choices) in all the tax-deferred accounts adding FTSE ex-US SmallCap (VSS) in an appropriate portion to fill out the Internationals funds.

I Use the Total Stock (VTI) and Total International Funds (VXUS) in all three taxable accounts (and TLH to different funds as necessary, never using any of the 401(k)/IRA funds.

This way I only have to worry about TLH/wash issues on the 3 taxable accounts and I have dividend reinvestment turned off. This year I have done 2 TLH efforts on VXUS (actually in the sale part of the round trip for the second effort now.) with zero concern about wash sales in IRA/tax-deferred accounts (I wear suspenders too :!: , not really)

You can adjust this approach easily to your situation. Look at the fund choices made in the 401(K) and 403(b) and try to use them in the IRAs if you have to.

Also, obviously don't sell taxable funds to make any differentiation, instead restructure the tax-deferred fund choices away from the taxable funds you own to the extent possible.
Everything you say make sense, and of course I could make tax-consequence-free changes inside my retirement accounts. But alas, I am but a simple index investor who knows and trusts Vanguard and their funds. Luckily I have good access to vanguard funds within my retirement accounts as well. I could try to create the index using something other than Vans TSMI, but unfortunately, I already have Vans 500 index and vans extended market inside my taxable account which I bought around 2000 and they have too much unrealized gain for me to touch them. Anyway, I get what you're saying. It makes sense. I've only in the last few years caught on to using spec ID so the whole exercise of tax harvesting is still new to me. Surprisingly, I haven't gotten much help from Vanguard regarding how to create their TSMI using other Vanguard funds. Try asking them how to recreate the TSMI using the 500 index and extended market. I get a different answer each time I ask and it's never a confident answer. Bogleheads information on this over at wiki is quite dated and of course it always changes as the large and small cap ratio never quite stays the same.

However, it's my understanding that if the funds are similar but not the same and you buy more shares you might still be subjected to a wash rule. Also, I see the fund of funds you have access to don't include bonds. That's good. Even so, I like to be able to prioritize what goes in and out of retirement accounts in terms of international or US stocks.
Read this wiki page on how to create new total market approximations. It is not hard and you can do it with all Vanguard Index Funds.

https://www.bogleheads.org/wiki/Approxi ... ock_market

bobsmith
Posts: 360
Joined: Thu Jan 24, 2013 4:02 pm

Re: Wash Sale rules help

Post by bobsmith » Wed Sep 12, 2018 11:40 am

Read this wiki page on how to create new total market approximations. It is not hard and you can do it with all Vanguard Index Funds.
I'm aware of it. Thank you!

Nate79
Posts: 3580
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Wash Sale rules help

Post by Nate79 » Wed Sep 12, 2018 1:49 pm

rkhusky wrote:
Tue Sep 11, 2018 6:16 pm
bobsmith wrote:
Tue Sep 11, 2018 5:22 pm
I don't really want to spend the time investigating and setting up and alternative fund to get into in the meantime, plus there's the rule about not investing in similar type funds which is exactly what I'd be interested in doing.
The IRS terminology is "substantially identical", which I think is much closer than "similar". No one knows what it means because the IRS hasn't defined it. Some think Investor vs Admiral shares of the same Vanguard fund fit the definition. Others might be more conservative and say that two funds that track the same index might fit the definition. But if you are fine with your plan, it should work.

See form 8949 for instructions on reporting wash sales.
I think this is completely backwards. Substantially identical means to be so close to identical that they are practically identical - substantial is a VERY strong word. This isn't even in the ballpark of "similar."

rkhusky
Posts: 5711
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wash Sale rules help

Post by rkhusky » Wed Sep 12, 2018 4:41 pm

Nate79 wrote:
Wed Sep 12, 2018 1:49 pm
rkhusky wrote:
Tue Sep 11, 2018 6:16 pm
bobsmith wrote:
Tue Sep 11, 2018 5:22 pm
I don't really want to spend the time investigating and setting up and alternative fund to get into in the meantime, plus there's the rule about not investing in similar type funds which is exactly what I'd be interested in doing.
The IRS terminology is "substantially identical", which I think is much closer than "similar". No one knows what it means because the IRS hasn't defined it. Some think Investor vs Admiral shares of the same Vanguard fund fit the definition. Others might be more conservative and say that two funds that track the same index might fit the definition. But if you are fine with your plan, it should work.

See form 8949 for instructions on reporting wash sales.
I think this is completely backwards. Substantially identical means to be so close to identical that they are practically identical - substantial is a VERY strong word. This isn't even in the ballpark of "similar."
I.e. two funds that are substantially identical are much closer to each other than two funds that are just similar, which is what I said.

Nate79
Posts: 3580
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Wash Sale rules help

Post by Nate79 » Wed Sep 12, 2018 5:30 pm

rkhusky wrote:
Wed Sep 12, 2018 4:41 pm
Nate79 wrote:
Wed Sep 12, 2018 1:49 pm
rkhusky wrote:
Tue Sep 11, 2018 6:16 pm
bobsmith wrote:
Tue Sep 11, 2018 5:22 pm
I don't really want to spend the time investigating and setting up and alternative fund to get into in the meantime, plus there's the rule about not investing in similar type funds which is exactly what I'd be interested in doing.
The IRS terminology is "substantially identical", which I think is much closer than "similar". No one knows what it means because the IRS hasn't defined it. Some think Investor vs Admiral shares of the same Vanguard fund fit the definition. Others might be more conservative and say that two funds that track the same index might fit the definition. But if you are fine with your plan, it should work.

See form 8949 for instructions on reporting wash sales.
I think this is completely backwards. Substantially identical means to be so close to identical that they are practically identical - substantial is a VERY strong word. This isn't even in the ballpark of "similar."
I.e. two funds that are substantially identical are much closer to each other than two funds that are just similar, which is what I said.
I misunderstood what you were saying. I agree.

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