From Pub 550, page 56 (or so), "Wash Sales" is defined as:
"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
- Acquire substantially identical stock or securities in a fully taxable trade,
... If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities ..."
Now consider this example: I bought one share of X at $100, then one day later I sold one share of X at $99, with both trades in my IRA account. Then after another day, I bought one share of X at $98 in my taxable account.
The IRS code seems to imply that 1) I sold a stock at a loss in my IRA account; 2) I triggered a "wash sale" because "I acquired an identical security in a fully taxable trade". And thus, the loss in my IRA account is added to my cost basis in my taxable account.
This sounds too good to be true. Am I mis-reading the IRS code?
Update: If I am mis-reading the IRS code, most likely it is due to this: "Loss" is not defined as the difference between purchase price and liquidation price, in a retirement account. And I actually never had a "loss" in the IRA account. But I would like to hear from someone who really knows the code.