How to Write Off a Loss on a Roth IRA
Poor retirement investment performance can leave you with a loss when you cash out all your investments. For a modest recovery, you can write off the loss on your 1040 Schedule A. Losses on a Roth IRA investment can be claimed as a deduction.
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Things You'll Need
- Form 1040
- Form 1040 Instructions
- Schedule A
- Instructions for Form 1040 Schedules A & B
- Form 8066
- Form 8066 Instructions
- Roth IRA contribution information and records
- Roth IRA distribution information and records
- Calculator, spreadsheet or tax accounting software
Instructions
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Collect records and information on Roth IRA contributions and distributions. All amounts contributed by payment or by conversion or rollover from qualified plans, 403(b) accounts and 457(b) plans are needed. And, all distribution amounts are needed.
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Determine if you are eligible for the write off. There are two requirements. You must have liquidated all your Roth IRA investments. And, the tax basis exceeds the total amount distributed to you; the tax basis is the total nondeductible contributions.
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Order forms and instructions. You use Form 1040 and Instructions, Schedule A and Instructions and Form 8606 and Instructions. Write to the Internal Revenue Service, visit www.irs.gov, or call 1-800-TAX-FORM.
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Calculate the loss amount. Subtract tax basis from the total amount distributed. Use the tax basis from Form 8606. Include all payments into the account, conversions and rollovers in the tax basis. All payments are included because contributions to Roth IRAs are nondeductible.
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Apply the Adjusted Gross Income limit. The AGI limit for total miscellaneous itemized deductions. Multiply AGI by 2 percent. Subtract the result from total miscellaneous deductions.
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Write off the loss as a miscellaneous itemized deduction on Schedule A for Form 1040. Fill in the amount on Schedule A. Total the miscellaneous deductions, including the AGI limit subtraction. Then, transfer the amount for total miscellaneous itemized deductions to Form 1040.
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File the two forms. Mail Form 1040 with Schedule A and Form 8066 to the IRS. Form 1040 and Schedule A can be filed electronically at www.irs.gov/efile.
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Tips & Warnings
For determining the alternative minimum tax, all losses are added back to income. You might be eligible for a state income tax benefit.
