Deducting IRA Losses - IRS Publication 590 - John R. Dundon II, Enrolled Agent
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Deducting IRA Losses – IRS Publication 590

Deducting IRA Losses – IRS Publication 590

According to IRS Publication 590, chapter 1 section “Recognizing Losses on Traditional IRA Investments” you can indeed deduct for tax purposes a loss on IRA plans if you cash out all funs out of all IRAs of the same type be they traditional IRAs Roth IRAs.

For traditional IRA’s any loss would be reported on IRS Form 1040 Schedule A reported as a miscellaneous itemized deduction subject to the 2% of Adjusted Gross Income (AGI) threshold limit.

If value of the Roth IRA has dropped below your total contributions, then the entire value of the account can be cashed out and you can take a deduction for the loss, and the distribution will not be subject to the early distribution penalty. This is provided for in the Treasury Regulations section 1.408A-6. If the Roth IRA has lost value there is no deduction. Also keep in mind that miscellaneous deductions usually are adjusted out by the alternative minimum tax further eroding the tax benefit of claiming the loss.



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