Sequel to “Warning to Individuals Investing In Sure Canadian Hashish Shares That Have A U.S. Presence”

Final month, I wrote concerning the main dividend tax withholding charge variations present amongst the assorted forms of inventory holding entities, starting from 0% for retirement accounts to 25% for non-retirement accounts. 

With many shares greater than 50% off from their 52-week highs, some buyers may very well be sitting on important losses and should discover it handy to “kill 2 birds with one stone”. That’s, they might be contemplating promoting their shedding shares of their private account for tax loss causes, then instantly changing them of their retirement account in an effort to qualify for the exemption on withholding taxes.  This may very well be a BIG mistake costing buyers’ cash. 

Right here’s why:

Usually, wash sale guidelines are triggered when a inventory is disposed at a loss after which repurchased inside 30 days of the unique disposal of the shares of inventory.  When a wash sale happens inside a private account, the capital loss is denied till the repurchased shares are then offered and not using a subsequent repurchase for 31 or extra days (not so with features, which might be taxable no matter wash sale guidelines).

Nevertheless, that’s not the identical scenario once we promote for a loss in a private account after which repurchase shares in a retirement account.  Underneath IRS Income Ruling 2008-5, the non-public loss is not going to solely be denied, however will probably be completely misplaced.  As talked about within the ruling, “the loss on the sale of inventory is disallowed underneath part 1091 of the Inner Income Code”.

What Ought to Buyers Do?

If promoting shares at a loss, wait out the prescribed time earlier than repurchasing in an IRA in an effort to forestall the misplaced tax advantages.  Nevertheless, in doing so, consideration have to be taken concerning the financial alternative misplaced by not taking part within the Canadian Hashish inventory in the course of the 30 or extra days publish the disposal of shares.

Converse together with your tax advisor in case you are nonetheless uncertain of the most effective circumstances for you.