Loss deduction
Is there any instance where someone can deduct losses within an IRA? I’ve had several accountants inquire about this but I’m not aware of any situation that would allow this. (The only possible exception perhaps in an IRA that has non-deductible contributions?)
Permalink Submitted by Alan Spross on Mon, 2009-03-09 17:13
The only deduction available is a misc itemized deduction subject to the 2% of AGI floor that is available if all IRAs of a given type are fully distributed. In that situation, the amount received is deductible to the extent it is less than the basis for these IRAs. This is more typical of a Roth IRA, where all contributions are basis.
Without termination of all such accounts, there is no deduction available. Losses in a traditional IRA mostly result in a reduction of RMDs and taxable future distributions since the basis in TIRAs is typically a very low portion of the current balance.
Perhaps there will be special rulings with respect to the Ponzi-Madoff losses, possibly involving a theft deduction, so we will have to stay tuned to that situation.
Permalink Submitted by mk foss on Tue, 2009-03-17 16:47
The head of the IRS testified before Congress today and announced a new Revenue Ruling and Revenue Procedure regarding losses from Ponzi schemes. They will be treated as theft losses but because they relate to investments rather than personal assets the $100 and 10% of AGI limits do not apply.
The losses are measured by the investment and by the income reported which increases the invetment. There was no mention of IRAs or retirement plan where there was no basis in his testimony. Perhaps the new IRS releases will give more information.