Wash Rule

I have a question regarding the 30 day wash rule. If I sell a large cap value fund from my TAXABLE account and harvest the loss to reallocate those funds, am I allowed to use those losses if I buy a large cap value fund in my ROTH IRA within the 30 day window? They are different funds, and from different fund families, but I am not sure what the IRS considers "similar funds".

Wash Sale rules wouldn't apply here. They are designed to prevent you from selling and buying substantially identical holdings to take advantage of the losses write off. Your proposed transaction is competely legit and on the surface...seems to be wise as well.

Here's the IRS definition:

Substantially identical. In determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases. For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.

Similarly, bonds or preferred stock of a corporation are not ordinarily considered substantially identical to the common stock of the same corporation. However, where the bonds or preferred stock are convertible into common stock of the same corporation, the relative values, price changes, and other circumstances may make these bonds or preferred stock and the common stock substantially identical. For example, preferred stock is substantially identical to the common stock if the preferred stock:

Is convertible into common stock,
Has the same voting rights as the common stock,
Is subject to the same dividend restrictions,
Trades at prices that do not vary significantly from the conversion ratio, and
Is unrestricted as to convertibility.
http://www.irs.gov/publications/p550/ch04.html#d0e12652

Spritz924,

Good idea.

Pricespector has stated this quite well.

Really you are allowed to buy the same asset you just sold at a loss.
The wash sale rule delays you from claiming the loss.
The loss is added to your basis on that repurchase.
You would then claim that loss when you sell that repurchased asset and do not make another repurchase within 30 days of that sale.

So there is basically a "wait time" after you sell your asset at a loss and before you can repurchase it ?

Layla17,

Welcome to the forum.

Wash sales happen when you sell an investment at a loss and buy the same investment within plus or minus 30 days of the sale.

Thanks for the information clydewolf. I appreciate you taking the time to explain it to me. I'm kind of new to the real estate and tax area.