Wash Sale Rule Extended to IRAs
The IRS has finally issued the definitive word on "wash sales" inside an IRA.
Basic premise: Normally, if you incur a loss on the sale of a security, you can use the loss to offset annual capital gains plus up to $3,000 of ordinary income. But the wash sale rule prohibits you from deducting the loss if you buy back substantially identical securities within 30 days of the sale. Silver lining: You can add the nondeductible loss to your basis.
In settling a long-standing debate, the IRS now says that the wash sale rule applies if you buy back the securities through an IRA (either a traditional or a Roth). Plus, you cannot make a basis adjustment for the nondeductible loss.