Ask the Expert: Deducting Roth IRA losses no longer an option
In 2008, I had a Roth IRA worth about $12,000. I made some bad investment choices during a rough market and today it's only worth about $1,000. I'm 67 years old. If I closed the account, would I be able to take the tax loss? Also, is there a way to check the amount of my total Roth contributions?
Your IRA custodian — financial institution that holds the account — can tell you the total amount you contributed to the Roth IRA. And you can withdraw the $1,000 tax and penalty free. But under current law, your losses are no longer tax deductible.
Until 2018, people who itemized on their tax returns could claim losses incurred in Roth IRA as a miscellaneous deduction if they had closed the account. But the 2017 Tax Cuts and Jobs Act (TCJA) suspended itemized deductions for miscellaneous expenses (like tax preparation fees, investment fees, job-related expenses and Roth IRA losses) from 2018 through 2025.
It's anyone's guess how Congress will address the law in 2025.
The same law increased the standard deduction. As a result, most people can now lower their taxes more by taking the standard deduction than by itemizing.
But even before miscellaneous deductions were suspended, they weren't as good a tax break as you may imagine because they were only deductible to the extent that they exceeded 2% of your Adjusted Gross Income. If your income was $105,000, for example, you could only deduct miscellaneous expenses above $2,100 — 2% of $105,000. If your only miscellaneous deduction was a $4,000 Roth IRA loss in a closed account, only $1,900 of it was deductible. "If your income was too high, you lost the deduction," says Ed Slott, a Rockville Centre tax accountant.
The bottom line
Tax laws are subject to frequent change.
