How to Claim Stock Losses in Roth IRA
The IRS allows you to take a tax deduction for losses on your Roth IRA only in very limited circumstances. In order to claim a deduction, you must close your Roth accounts and the amount you can deduct is based on the value of your contributions rather than the value of the account at the start of the year. The deduction is also an itemized deduction, meaning you cannot also claim the standard deduction. These restrictions make it unlikely that the deduction will be worth it for you.
Other People Are Reading
Instructions
-
-
1
Close all of your Roth IRA accounts. Your accounts must be completely empty in order for you to claim a loss for your Roth IRA.
-
2
Determine your tax basis for the Roth IRAs by adding together all of the contributions you have made to the accounts. Since all contributions to the Roth IRA are non-deductible, they all count towards the basis. For example, if you had contributed $2,000 per year for a dozen years, your basis would be $24,000.
-
-
3
Total the amount of money you received when closing your Roth IRAs.
-
4
Subtract the amount you received from closing your Roth IRAs from the tax basis. If this amount is greater than zero, you can take a deduction. For example, if your tax basis was $24,000 but you only received $18,000 when you closed it, the difference would be $6,000.
-
5
Determine your deduction amount. Since the Internal Revenue Service classifies the deduction for Roth IRA losses as a miscellaneous deduction, you must subtract 2 percent of your adjusted gross income. Multiply your adjusted gross income by 0.02 and subtract this amount from the amount found in step 4. For example, if your adjusted gross income was $50,000 and you lost $6,000, you would have to subtract $1,000 so your deduction would be $5,000.
-
6
Report the deduction on Schedule A, the itemized deduction form, and file it with your Form 1040 tax return.
-
1
Tips & Warnings
If you are subject to the alternative minimum tax, you are ineligible to take a deduction for losses in your IRA.
