Early in the year, I bought $15,000 of shares in a mutual fund within a IRA account. At year end, they're worth only $11,000. I know I can't tax harvest the $4,000 loss by just selling the stock and leaving the proceeds within the tax-deferred IRA.
But what if I sold the shares and took the $11,000 from the IRA as a distribution?
I know that amount would be taxable as ordinary income-- but is there any way to deduct the $4,000 loss?
According to Wade Garrett snipped-for-privacy@cooler.net:
Assuming it's a typical IRA with a zero basis, no. The 11K would be taxable as income.
Regardless of whether there is basis in the IRA or not, the answer is still (generally) "no". The only circumstance where you can deduct a loss in an IRA is when you close out the account and the total received in the distribution is less than your basis in the IRA.
Ira Smilovitz, EA Leonia, NJ
You've already gotten the "benefit" of the $4,000 loss by virtue of the fact that you're only paying tax on $11,000 rather than the $15,000 you originally excluded from your income. Remember - that $15,000 would have been subject to tax had you not sheltered it in the IRA. By only paying tax on $11,000, you effectively got the effect of a $4,000 deduction.
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But you are "deducting" the $4,000 loss because you are only paying tax on $11,000 instead of $15,000.
Bob Sandler
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