Wash sale due to sale in taxable account and purchase in IRA account

[praveenb235]

Hi

My brokerage has reported  certain transactions as wash sale due to the following reason - Sale of Stock, ETF, Mutual fund in taxable account with capital loss and repurchase of the same stock, etf and mutual fund in non-taxable Retirement account within 30days.  I have sold all the Stocks, etf, mutual funds in non-taxable retirement account which triggered this wash sale last year itself(before Dec 2022) but the 1099-B still has the original taxable sale transactions as wash sale.  Is there any way for me to recoup those tax losses now ?

Thanks

Praveen

[JohnB5677]

The Wash sale represents a loss in the sale of a stock, ETF, Mutual fund that are repurchased +/- 30 days. The Wash Sale is a disallowed loss and has no direct impact on your current tax return.  

Your broker properly reported the Wash sale on your 1099-B even though the underlying securities were sold in the retirement account.  Because they were sold in the retirement account, you could not take advantage of the increase in the stock basis.

If I've misunderstood your question, and this does not completely answer it, please contact us again and provide some additional details.

[praveenb235]

Let me provide an example
I bought 10shares of Xyz on Jan 2020 for 100$ each and sold all the shares on March 1st 2022 for 50$ each.  Repurchased 100 shares of Xyz on March 28th 2022 using my non-taxable retirement account. This caused a wash sale.

Wash sale causes basis readjusted so that I can recover the loss/gain when the readjusted basis shares are sold out. 

Now I have sold the 100 shares on Xyz in my retirement account on Nov 1st 2022 for 50$. Since Nov1st transaction was in non-taxable account, any basis change due to March1st transaction doesn’t allow me to claim 50$*100 capital loss.
Basically I cannot claim 5000$ in capital losses . Wash sale shouldn’t have caused a permanent loss(inability to claim the capital loss in my tax return) to me but only temporarily postponed it to future sale transaction.

Since I have sold all the shares which created the wash sale, am I allowed to readjust the basis for March 1st transaction??

Thanks

[DianeW777 · Accepted solution]

It appears you have a basis adjustment in both accounts. You must prorate the basis between the accounts and report only the personal account sale upon complete sale of all stock associated with the wash sale.  The IRA account basis would be adjusted in a likewise manner and would not be reported on your tax return if it remains in the account.

• Wash Sale Rule for All Accounts-One Investor (or both spouses for MFJ): In 2008, the IRS issued 'Revenue Ruling 2008-5,' where it addressed the question of whether the wash-sale rules apply to IRAs. In the ruling, the IRS explained that when shares are sold in a non-retirement account and substantially identical shares are purchased in an IRA within 30 days, the investor cannot claim tax losses for the sale, and the basis in the individual's IRA is not increased.
  • Wash Sale Rules For IRAs

[praveenb235]

Hi

Just to be clear, are you telling that I can say remove the basis adjustment for the wash sale transaction and add the wash sale loss back to total stock capital gain/loss value ?

Thanks

[DianeW777]

Yes, only the personal account portion (not the IRA portion), since the wash sale rules are completed at the time of full disposition of the stock.

[praveenb235]

Thanks for clarifying.. I would have expected my Brokerage to fix the basis since I sold all the stocks which caused this wash sale- All transactions happened in the same brokerage under different accounts.. Is this common for brokerage firms to miss this and have us correct it ourselves? 

[DianeW777]

Yes it's common.  Wash sales can occur over more than one tax year which makes the tracking for them very tedious.  Fortunately they are not required to track the final sale only the initiation that a wash sale occurred.