TAX DEDUCTIONS FOR IRA LOSS ???
I have a client who is closing and rolling over his ira to a new plan. He say’s he has lost money in this IRA and it is worth much less than he had deposited into the act. Does he have any ability to write off this loss and if so how? One accountant I spoke to feels he can’t write it off.
Permalink Submitted by Alan Spross on Tue, 2008-03-04 22:01
What type of new plan?
If another IRA, no write off since he must close all his IRAs of that type.
If to an employer plan:
1) A Roth IRA, usually with a higher basis, cannot be transferred to an employer plan, not even a Roth 401k plan.
2) A Traditional IRA CAN be transferred to an employer plan that will accept it, but the plan cannot accept non deductible contributions or after tax money from an IRA. Therefore, if a plan accepts his rollover, that means that he has no loss and his basis is still intact.
So it is unlikely that the combination of the above would create a deductible loss. If his TIRA value fell below his basis, there would be nothing to transfer to an employer plan, but in that case he COULD close all his TIRAs and his loss would be the difference between what was left and his basis as documented on Form 8606 for that year or earlier.
Underlying the above is the reality where if he deducted all his past contributions, the account would have no basis unless he rolled after tax 401k or similar employer plan distributions into it after 2001 and also filed an 8606 to document that rollover. Very few have done that.
Finally, if it turns out he DOES have a loss and closes all his IRAs of that type, the loss is a misc itemized deduction subject to the 2% floor with other such misc deductions, AND he also has to be able to itemize in total.
In theory, if all the pieces of the puzzle come together, he COULD have a deductible loss, but the fact he is doing a rollover makes it that much more unlikely.