IRA investment loss

Forum|Forum|2 years ago
April 9, 2024
2 replies
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In 2016 I invested a large amount of money in a company with my self directed IRA funds. They made monthly interest only payments on the invested money to my IRA until the end of 2022. They stopped paying the beginning of 2023 and filled for bankrupt the end of 2023. There are no assets to recover so I have lost all the money invested. How can I deduct the lost money on my taxes now and/or in the future? I use Turbo Tax Home and Business.

Best answer by VolvoGirl

Is the $3000 max deduction for investment losses per year directly off of the tax you owe or is it $3000 deducted off of your gross income?

Just off the income. So it's only a percentage off the tax.

VolvoGirl

Employee

Did you take the IRA deduction for the contribution? Then you already got the benefit of deducting it from your income. You get the loss by never claiming the IRA as income. And after 2017 a IRA Loss is no longer deductible

genmanAuthor

I'm confused. I invested money that was in my traditional self directed IRA account with this Company in 2016. They made monthly interest only payments to my IRA. I withdrew that money from my IRA and paid taxes on the money each year. Then in 2023 they completely stopped making payments and then filled for bankruptcy. So now I've lost all the "principle" amount of money. That lost money is what I want to be able to use as a tax deduction.

I know there is a way to deduct money lost in the stock market up to I think $3000 per year. Is there something like that available for my situation?

Thanks.

VolvoGirl

Employee

When you originally invested the principal did you take the IRA deduction on your tax return back in 2016? If you did you already got the deduction for it. You can't deduct the loss. It was never included in your income in the first place. You don't have a cost basis in the IRA like you have when you buy stocks.

Kay Cee

Did your SDIRA custodian already value the asset at zero? If the custodian still values the asset at the original investment cost, might you be able to withdraw it from the SDIRA at that original value, pay the taxes on the income accordingly, but then take a big loss outside of the IRA against ordinary income?

NCPERSON1

@Kay Cee effective with the 2017 tax law changes, losses within an IRA are not tax deductible outside the IRA.

dmertz

Employee

@Kay Cee , the investment would have to be distributed from the IRA in-kind to acquire a cost basis equal to the taxable amount. However, my understanding is that with a SDIRA the IRA owns an LLC which owns the investment. I'm not sure that the investment can be distributed in-kind from the IRA if it's not the IRA that owns the investment. I don't know if the LLC itself can be distributed in-kind.