IRA Losses
Section 33.12. LOSSES FROM AN
IRA
A
loss
from an IRA may be recognized only when all amounts have been distributed and
only if the total amount distributed is less than the taxpayer's unrecovered
basis (generally attributable to non-deductible contributions).
<87>
EXAMPLE: Ellen makes contributions
totaling $10,000 to an IRA, all of which were non-deductible. The IRA has earned
$4,000 over the course of five years. Ellen received a distribution of $6,000 at
the end of the fifth year. The non-taxable portion is $4,286 ($10,000/$14,000 x
$6,000). The remaining balance is $8,000 ($14,000 minus $6,000). The remaining
basis is $5,714 ($10,000 minus $4,286). If in the next year the
IRA
sustains a loss
of $5,000, the account balance as of the end of the year is $3,000, which is
less than the remaining basis. Ellen may claim a loss if she withdraws the
entire remaining $3,000. If she withdraws less than $3,000, however, the
calculation to determine the non-taxable portion will yield 100 percent, but no
loss may be claimed.
<ENDNOTES>
87/
Code Section 165(c)(2)
; Notice 87-16,
1987-1 C.B. 446. Thus, for example, a taxpayer may not claim an ordinary
loss
deduction on the difference between an
IRA
and the (lesser) amount received on subsequent
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