Wash Sale question (sort of) between IRA and non-IRA accounts (Advanced trading)

Let's say I had an IRA with $100K and a non-IRA brokerage account with $100K and my aim, for tax purposes was to generate losses in the non- IRA account but have off-setting positions in the IRA. (I would generally do this with futures options, btw.) I risk an accidental taxable gain offset if the Non-IRA profits and the IRA loses, and the latter , effectively, wipes out my gain. But in the inverse, if my IRA positions go up, I get a tax-deferred gain and a taxable loss in the non-IRA -- plus I have -- effectively -- moved money from a taxable to a tax-deffered account. What's wrong with this scenario, besides the risk I already stated? Is there a legal issue I am unaware of? Seems to me if you do your probabilities correct and write futures options naked in the IRa and buy them in the non-IRA, you could -- effctively -- money money into an IRA, with little risk, no?

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Reply to
garagecapital
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I've considered similar whacky schemes. This is the 'Lucy Ricardo' of investing. If you buy X within 30 days (before or after) of a loss on X in a different account, you have a wash sale problem. The use of an IRA doesn't change that, per

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In theend, when I am doing my year end planning, if I have a stockI wish to use for a tax loss, I double up in November, andsell the shares for the loss in December. I'd be curious tosee if any other replies contradict this. I believeFairmark's interpretation is accurate. JOE

Reply to
joetaxpayer

The issue of whether replacement assets in an IRA can create a wash sale outside the IRA is unsettled. I've seen good arguments both ways. IRS hasn't taken any formal position, and AFAIK the issue hasn't been litigated. I say, "Go for it" with full disclosure. It would be nice to see this litigated and settled.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

This is one of the perennial arguments here and in other online tax fora.

You will find some people who say it is kosher

You will find some people who say it's a wash sale.

You will find some people (such as Kaye Thomas over at fairmark.com) who say it's a related-party sale (so even worse than a wash sale).

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Reply to
Rich Carreiro

If you could make money in the IRA with little risk, why not just do that and don't bother losing money in the other account? Seth

Reply to
Seth

I don't think this is the typical question. The typical question would be along the lines that you take a loss in the regular account, and a few days later you buy the same security in an IRA account. People differ on that, and I am one who believes that is allowed without being having a wash sale. This descriptions sounds like you are figuring out how to do trades where you and your IRA are probable buyers and sellers of the same trades. If you are coordinating the trades between the account for effect, I think that would be a very different situation. You appear to be describing what I think would be clearly disallowed. Your last sentence hints at something that I expect is illegal.

Reply to
DF2

Ok, let's assume the issue is vague with the IRS on the wash sales. But what if taking the tax-deduction on the loss wasn't the reason for making the trades? Suppose all you wantd to do was take $100,000 from a non-IRA account and put it in your IRA account. Wouldn't offsetting trades do this and since you're not going to tax the tax deduction the wash sale rule doesn't apply. You're not trying to tax a tax deduction but merely move funds into a tax-deferred account. Or are wash sales illegal even if you don't take the tax deduction?

Reply to
nickr

I assume that whether the wash sale rules include looking at IRA transactions is a high-visibility thing. If the IRS thought that a person who's IRA reinvested a dividend in GM would be prohibited from taking a loss on a GM share sale within 30 days of that dividend, they would not be shy about saying so. Yet some others come to a different conclusion.

I think that taking the loss there is fine, tho this could come closer to being thought of as self dealing. I would not interpret your simple act as being the "Advanced trading" that garagecapital proposed. I am assuming that the trades you described were such that they would be unlikely to be trades between you and your IRA. Advanced/clever strategies in this area raises my suspicions. See the discussions on self dealing:

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Wash sales are not illegal. Not properly reporting them as such would be. My opinions in tax rules are non-expert.

Reply to
DF2

Wash sales are perfectly legal. The only issue is the deduction. However, if you knew a way to do a trade in your IRA that would gain $100,000 and the reverse trade in your outside account that would lose $100,000, why not just do the trade in your IRA and get rich? Seth

Reply to
Seth

dealing:

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How does one properly report a wash sale when the gain is in an IRA and the loss is in a taxible account? Does one simple report the gain and thus make the IRA a taxable rather than tax-deferred instrument? What about future gains, dividends, et-cetera on the position in the IRA? Are they taxible, too? For how long? Even taking a one-time tax hit on a gain might be worth it if the after-tax money can grow tax- deferred for 20-30 years, no?

Reply to
nickr

The loss in the taxable account is disallowed. But the loss is not lost, logic would say that your IRA basis has just gone up by the amount of that loss. I've asked this question in the past and the answer is not spelled out by the IRS. But consider, the taxable account no longer owns the stock. So the only place to add the loss to your cost is in the IRA, in effect creating a dollar value of post tax money. I'd like to hear if here are any other suggestions how to handle. JOE

Reply to
joetaxpayer

Seth, I don't know if you trade, but you could post a ask on a OTM futures option in the IRa account and hit the ask in your non-IRA account. So that's how you would move $100,000 into an IRA. I never said what you think I meant. See previous posts. My concern here is whether this is self-dealing and from my reading of the regs, I now think it is. But it sure isn't explicit and in some cases it may not be. Typical.

Reply to
nickr

Since I believe that the wash sale rule does not apply, I think you just report the loss on schedule D. Remember that I am not expert, but I don't remember an expert posting case law or rulings on this. However if you are did the self-dealing that I suspect might be involved in the original scenario, I don't know where to confess that. You or your lawyer could come clean and try to make a settlement. It may be considered a distribution from your IRA.

Reply to
DF2

It would get hit by a market maker a lot faster, if the price is too high.

Yes, it is; you're dealing off-market with your IRA.

It isn't self-dealing if both transactions are made on the market, with anonymous counterparties. Seth

Reply to
Seth

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