Tax-loss Harvesting and Wash Sale Rule

Submitted by Florina Chuy on Mon, 2020-09-07 22:19

1. If I sell ETF shares in a taxable account to generate a loss and buy the same ETF in my Roth IRA right afterward, would that trigger the wash sale rule?
2. To generate a loss in a taxable account for tax-harvesting purposes, do those shares have to have been held for one year? Or you can sell any time you want?



Submitted by David Mertz on Mon, 2020-09-07 23:25

  1. Yes, that would be a wash sale.  The loss would increase the cost basis of the shares in the Roth IRA, but the loss would never actually be recognizable since cost basis of investments in an IRA is not used in determining the taxable amount of a distribution from an IRA.
  2. The holding period determines whether or not the loss is short-term or long-term.  A loss on a sale in a taxable account is a long-term loss if the shares were held more than a year, otherwise it’s a short-term loss.  Whether the loss is short-term or long-term determines how the loss is applied against short- and long-term gains.

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