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rsande
New Member

Can I deduct IRA CD penalties for early CD withdrawal

I transferred IRA CD"s from one institution to another before its maturity thus incurring penalty. Is the penalty amount deductible?

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Accepted Solutions
PaulaM
Expert Alumni

Can I deduct IRA CD penalties for early CD withdrawal

Yes, your can deduct for a taxable CD. When you enter the interest income on Form 1099-INT, check the box beside 'My form has info in more than one box 1'. Then enter the penalty in box 2. That will reduce your adjusted gross income by the penalty amount.

For a CD that is held within an IRA, there is no taxable event and nothing to deduct as SU bsch4477 has noted below.

[edited 1/31/18| 4:19 pm PST]

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3 Replies
PaulaM
Expert Alumni

Can I deduct IRA CD penalties for early CD withdrawal

Yes, your can deduct for a taxable CD. When you enter the interest income on Form 1099-INT, check the box beside 'My form has info in more than one box 1'. Then enter the penalty in box 2. That will reduce your adjusted gross income by the penalty amount.

For a CD that is held within an IRA, there is no taxable event and nothing to deduct as SU bsch4477 has noted below.

[edited 1/31/18| 4:19 pm PST]

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Bsch4477
Level 15

Can I deduct IRA CD penalties for early CD withdrawal

TT PAula might have not realized that the CD was in an IRA.  The rules for taxable accounts are different than for CDs held in an IRA. ... If you have an early withdrawal penalty in an IRA then there's no taxable event, and you also won't be able to deduct the lost interest or penalty.

PaulaM
Expert Alumni

Can I deduct IRA CD penalties for early CD withdrawal

@bsch4477 Thanks! I'll edit to reflect.
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