A 63-Year-Old Trying To Harvest A $40,000 Loss In Nvidia Stock Before Year-End Faces A Potential IRA Trap. A 2008 IRS Ruling Means One Easy Mistake Could Wipe Out The Write-Off Permanently
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Before harvesting losses this year, investors who hold NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) in a taxable brokerage account and also have an IRA should check the wash sale rule’s IRA trap. Say you sell a losing stock for the write-off and then rebuy it inside your IRA within 30 days. The IRS can erase that loss permanently. A 2008 revenue ruling spells it out.
How a Smart December Sale Becomes a $40,000 Mistake
Consider a hypothetical retired engineer, age 63, is married filing jointly for the sake of explaining the wash sale IRA trap. The couple’s portfolio totals $1.9 million: $1.35 million in a traditional IRA and $550,000 in a brokerage account at the same broker. They live on a pension plus portfolio withdrawals and haven’t claimed Social Security yet.
Their Nvidia shares sit in the taxable account. They paid $160,000 near the October peak, and the position is now worth $120,000, which leaves a $40,000 paper loss. In December they sell everything to lock in the loss. They still like the stock, so six days later they buy the same number of shares inside the traditional IRA. Their reasoning is that the IRA is a separate pot. The IRS disagrees.
What the IRS’s 2008 Ruling Says in Plain English
The wash sale rule comes from 26 U.S.C. § 1091(a). It denies a loss deduction when you buy “substantially identical stock or securities” in the window that starts 30 days before the sale and ends 30 days after it. IRS Publication 550 lists one trigger by name: buy “substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.”
Revenue Ruling 2008-5 explains why. An investor in the example sells shares at a loss on December 20, 2007, and has an IRA buy the same stock on December 21, 2007. The IRS treated the owner as the buyer even though an IRA is a tax-exempt trust. Its holding: “The loss on the Sale of stock is disallowed under § 1091. A’s basis in the individual retirement account or Roth IRA is not increased by virtue of § 1091(d).”
Why the IRA Version Kills the Write-Off for Good
An ordinary wash sale only delays your deduction. Under Publication 550, the disallowed loss gets added to the cost of the new shares, which “postpones the loss deduction until the disposition of the new stock or securities.” That fix specifically bars the IRA purchase case. With no basis to raise, the loss is gone.
Your spouse’s trades count too. Per Publication 550: “If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.”
Why Nvidia Holders Face This Decision Now
Nvidia closed at $168.89 on Nov. 10, down 5.47% from its $178.67 close on Nov. 9. The drop came as the board reviews reports involving CEO Jensen Huang after opening an inquiry. The stock is down 25.9% over the past month, so plenty of holders are sitting on fresh paper losses.
What the Loss Is Worth Down Each Path
| Path | Loss Allowed | Offsets Other Gains | Deducted Against Income This Year | Carried Forward |
|---|---|---|---|---|
| IRA Purchases Within the Window | None | None | None | None |
| IRA waits or buys something different | $40,000 | $15,000, leaving $25,000 | $3,000 | $22,000 |
The IRS caps the net capital loss you can deduct against other income at $3,000 a year ($1,500 if married filing separately). The unused part carries forward. In the trap row, all of that value disappears. This is one of several quiet IRS rules that can cost retirees six figures over time, and we charted the rest in a free tax trap map.
Your Checklist Before Dec. 31
- Sell by the trade date. The trade date sets the tax year, not the settlement date. In Publication 550’s example, stock sold on December 31, 2025 and settled in January still goes on the 2025 return.
- Hold off on IRA purchases. Wait 31 days after the sale before the IRA buys Nvidia. Also look back at the 30 days before the sale, because the window runs in both directions.
- Disable automatic buys. Pause dividend reinvestment and recurring purchases of Nvidia in your IRA, your Roth IRA and your spouse’s accounts.
- Watch options. Publication 550 says the wash sale rules “apply to losses from sales or trades of contracts and options to acquire or sell stock or securities.”
- Swap with care. If you want to stay invested, the IRA can buy something that is not substantially identical.
When to Bring in a Tax Professional
“Substantially identical” is often a judgment call. Before you swap into a fund that holds a lot of Nvidia, get a professional review. Do the same if automatic IRA purchases or reinvested dividends landed near your sale date, or if your IRA already bought shares inside the window. In this case, the gap between the two rows is $40,000 of write-offs, and the deadline is Dec. 31.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
