Wash sales allow investors to keep more money in their pockets and lower their tax bills. In the second installment of this two-part series, tax guru Julian Block discusses three strategies for overcoming wash-sale rules that you'll want to know to help clients prepare for the 2022 tax season.
Just joining us? Part one of this two-part series discussed Internal Revenue Code Section 1091, which imposes wash-sale rules that prevent an investor from claiming a current deduction for a loss on the sale of shares of stock if she purchases an identical one within 30 days before or after the sale. This article will discuss a trio of uncomplicated, perfectly legal ways for this client to circumvent the rules and still keep her position in an investment.
Before we discuss these strategies, let’s say your client wants to know the rationale for the rules. It’s a no-brainer. Absent the addition of Section 1091 to the tax code, she and other savvy investors could keep their portfolios intact, yet reap write-offs, just by unloading losers and immediately buying them back.
Let’s say your client is persistent and wants to explore another approach. Is it possible for her to use her IRA to circumvent Section 1091? Nope, according to Revenue Ruling 2008-5. Your client can’t have her IRA quickly buy back stock that she sold at a loss.
I would remind her of another complication. The 30-day period for wash sales can straddle 2021 and 2022. Let’s say that your client sells at a loss on December 31, 2021. The period during which she can’t purchase the same or “substantially identical” securities, as discussed in part one, runs from December 1 through January 30.
Now let's discuss the three strategies.
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Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes...