Tax Loss Washed in an IRA Question

nravo · Mar 2, 2009

Let's say, I want to take my SPY loss right now. Book it. I'll take the short term loss. And tomorrow I buy and equal dollar amount of DIA. Any problem with the IRS on this? Trading risk and correlation risk exist, I know) But generally, for taxes, can I do this?

nravo · Mar 2, 2009

Quote from nravo:

Let's say, I want to take my SPY loss right now. Book it. I'll take the short term loss. And tomorrow I buy and equal dollar amount of DIA. Any problem with the IRS on this? Trading risk and correlation risk exist, I know) But generally, for taxes, can I do this?

Apologies: I wasn't clear, I want to do the second half of the trade, buy the DIA in a non-IRA account, not an IRA.

Free Thinker · Mar 2, 2009

Quote from nravo:

Let's say, I want to take my SPY loss right now. Book it. I'll take the short term loss. And tomorrow I buy and equal dollar amount of DIA. Any problem with the IRS on this? Trading risk and correlation risk exist, I know) But generally, for taxes, can I do this?

no problem since they are not the same vehicle. where does the ira come in?
in any case there are no wash sales in an ira account since losses can not be deducted in an ira.

nkhoi · Mar 2, 2009

you are too clever for IRS.

Bolimomo · Mar 2, 2009

Quote from nravo:

Let's say, I want to take my SPY loss right now. Book it. I'll take the short term loss. And tomorrow I buy and equal dollar amount of DIA. Any problem with the IRS on this? Trading risk and correlation risk exist, I know) But generally, for taxes, can I do this?

Why are you taking a tax loss now? You have a different fiscal year? Not following the calendar year?

SPY and DIA will be considered different instrument. No wash-sales restriction.

In an IRA account this is immaterial.

Trader666 · Mar 2, 2009

However, a trade in an IRA can trigger the wash sale rule in a non-IRA account.

Quote from vhehn:

no problem since they are not the same vehicle. where does the ira come in?
in any case there are no wash sales in an ira account since losses can not be deducted in an ira.

nravo · Mar 2, 2009

Quote from Bolimomo:

Why are you taking a tax loss now? You have a different fiscal year? Not following the calendar year?

SPY and DIA will be considered different instrument. No wash-sales restriction.

In an IRA account this is immaterial.

No harm in taking the loss now, and taking a gain later when the market snaps back.

In fact, I may buy the DIA in my IRA, that way I take a loss now in my taxable account and book a closely correlated tax-deferred eventual gain in my IRA.

stinkyfelix · Mar 2, 2009

Quote from Trader666:

However, a trade in an IRA can trigger the wash sale rule in a non-IRA account.

This is very true.

Looking at page D-3 of the 1040 forms and instructions:

4. Acquire substantially identical stock or securities for your IRA. (30 days before or after the sale or disposition in a non-IRA account.)

The OP has a loophole because he switched from SPY to DIA so he is golden.

nravo · Mar 2, 2009

Quote from stinkyfelix:

This is very true.

Looking at page D-3 of the 1040 forms and instructions:

4. Acquire substantially identical stock or securities for your IRA. (30 days before or after the sale or disposition in a non-IRA account.)

The OP has a loophole because he switched from SPY to DIA so he is golden.

Seems like a rather obvious loophole, too for getting around he 30-day rule, but I am not sure how the IRS could block people from washing losses with close correlations; there are probably scores of them that are >95%. "Substantially identical" or derivatives there of, are not the same as different products closely correlated. My only fear is that this sounds too easy. Any tax pros here?

Trader666 · Mar 2, 2009

I'm not a tax pro but am sure about you being OK with SPY and DIA. VTI (total market index) is another ETF you could switch to.

Quote from nravo:

Seems like a rather obvious loophole, too for getting around he 30-day rule, but I am not sure how the IRS could block people from washing losses with close correlations; there are probably scores of them that are >95%. "Substantially identical" or derivatives there of, are not the same as different products closely correlated. My only fear is that this sounds too easy. Any tax pros here?