I sold a mutual fund from an IRA that I have had for years. I used the cash from that sale to start a ROTH IRA This triggered a wash sale. Why can't I claim the loss?

[CesarJ]

Losses from investments held inside an IRA aren't deductible for tax purposes, so when the mutual fund was sold within your IRS, there isn't a loss that can be claimed on your return.

The "wash sale rules" apply when a loss is realized in a taxable account and the same or similar investment is repurchased within 30 days. 

In your case, because the sale occurred inside the IRA, there isn't a deductible loss to begin with, so it's something that can be claimed.

The IRS addressed IRA's on Rev. Ruling 2008-5 which confirms that if a wash shale involves an IRA, the loss disallowed isn't recoverable. 

[Opus 17 · Accepted solution]

Whatever happens in an IRA happens in the IRA only.  You took a tax deduction for the contribution so you have no basis.  Whatever you take out is taxable.  This is reported on a 1099-R from the broker.

Then you opened a Roth IRA.  If you did not do a rollover, then this is a regular contribution and your contribution is limited to $7000, or $8000 if over age 50.  

If you did a rollover, the amount is not limited, that would also be reported on a 1099-R.

The wash sale rule is never involved if you report it correctly. 

[dmertz · Accepted solution]

The only way that you could have a wash sale that results in an unrecoverable capital loss is if you performed the following steps:

1. the mutual fund was distributed from the IRA to a brokerage account in-kind,
2. the mutual fund lost value,
3. you sold the mutual fund (or any substantially similar mutual fund) in the brokerage account, reported on Form 1099-B,
4. you used the cash proceeds from the sale to make an ordinary Roth IRA contribution (under these circumstances this is not permitted to be reported as a Roth conversion due to the same-property rule),
5. within 30 days of the sale you purchased a substantially equivalent fund inside the Roth IRA.

It's implausible that you would have done all of these steps, but it's certainly possible.

If you did not do a transaction that was reportable on Form 1099-B, there was no reportable capital gain or loss and no wash sale.