Deducting IRA losses
Hello,
The messages under “pepmex” below arouses my curiosity regarding this question. I was unaware losses in IRAs could be written off at all, but apparently they can. So perhaps someone could clarify.
1) It seems the IRS considers all IRAs as one account, which must show an overall loss, in order to allow any deduction. Moreover, per the answers given, all the IRAs would have to be liquidated in the same year to allow a deduction. Is this the case…?
2) Is it possible the IRS considers the TIRAS to be a separate account from the Roths, so that a net loss in either TIRAs or Roths may be deductible separately…?
3) In either case, I understand there is no provision for carry-overs from year to year, so all IRAs would have to be liquidated in one year. This seems ridiculous. Moreover, how is accounting for previous distributions over possible many years in the past handled in determining the amount of the loss…
Man, I hope I never really have to know these answers…..!
Thanks…!
Permalink Submitted by Alan Spross on Wed, 2007-11-28 04:51
1) All IRAs of a given type, ie. all traditional IRAs if you wish to deduct losses on them or all Roth IRAs if that applies. It is much more likely to have a loss on a Roth because the contributions are not deductible.
2) Yes, they are separate per above.
3) The loss is limited to the amount that your tax basis exceeds the closing value of the IRA type. A traditional IRA is mostly pre tax, so any basis would be limited to non deductible contributions or rollovers of after tax contributions to employer plans. Highly unlikely that this basis would ever exceed the closing value. For a Roth, however, it is much more likely that the basis would exceed the value, because any negative earnings at all will drop the account below contributions made.
Note: The deduction is limited to those that can itemize. It is a misc itemized deduction reduced by 2% of your AGI. It could be wiped out for those under the AMT. It is rarely useful to consider closing an IRA type unless the losses reduce the value far under the basis. You are correct, ther is no carryover if you cannot use the loss in the year you close the accounts.