Can I deduct stock losses from retirement income such as my IRA and social security?

[Texas Roger · Accepted solution]

Up to $3000 of capital losses not offset by capital gains can be deducted from ordinary income on your tax return. Losses in excess of that are carried forward to subsequent tax years. . 

[marywatson51]

I'm confused now because I found this online. My understanding of it is that you can't deduct them from retirement income such as Social Security or IRAs.       "IRA and 401(k) losses are an itemized deduction, so you can't claim it unless you give up the standard deduction. It also is categorized as a miscellaneous deduction subject to the 2 percent of adjusted gross income limit, so you can only deduct the portion of the loss that exceeds 2 percent of your AGI.".  
     PS. My loss to date is 16K from a regular brokerage account, not a retirement account. Thank you much.

[Texas Roger]

I may have misunderstood your question. I thought you were asking if losses from the outright sale of stocks (not part of any retirement account) could be deducted from ordinary income that included income from IRA distributions and the taxable amount of social security. If your losses to date are from a regular brokerage account, what is your concern about deducting losses from within a retirement account?

Perhaps this is one of the questions and answers you found online:  <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4234123-is-401k-investment-loss-tax-deductible">https://ttlc.intui...> Since many of the miscellaneous deductions allowed as an itemized deduction prior to the 2018 tax law changes are no longer allowed, I don't know whether this previous answer is still correct for tax year 2018 or not.

[macuser_22]

Losses within an IRA are not deductible at all.     The 2% provision does not exist for 2018-2025 since miscellaneous deduction are no longer allowed per the Congress tax bill.

"My loss to date is 16K from a regular brokerage account, not a retirement account."

You do not have any loss until you sell the securities and "realize the loss", then it is first used to offset any capital gains, then up to $3,000 of the loss is used to offset ordinary income which would include taxable IRA distributions and taxable Social Security income.  Any loss exceeding that will carry forward to next year.

[marywatson51]

Thank you much, however, I feel like I'm not explaining myself correctly...my only income is from SS and an IRA. I have a separate brokerage account that has nothing to do with my retirement accounts. The question is either 1) Can I deduct the brokerage account loss from my adjusted income which is comprised of social security and IRA income. OR  2) Is the brokerage account a whole separate matter? if so, how and where would I be able to deduct those losses if I cannot deduct them from my SS and IRA income? Hope that makes sense.   Thanks again.    PS. I understand that I cannot deduct IRA losses.   

[Texas Roger]

You can deduct up to $3000 of realized losses from the sale of stocks from your brokerage account from IRA and social security income that is included in your Adjusted Gross Income. The result will be a $3000 reduction in your adjusted gross income. If you have more than $3000 of realized losses from the sale of stocks, the additional losses will be carried forward for use on future tax returns.

[marywatson51]

THANK YOU SO MUCH!

[macuser_22]

As I said.    Have you sold the securities that have the loss?     If you are still holding the securities then it is a paper market loss only.   It only becomes a real loss when  sold for less that you paid wich then does become a deductible loss that can offset the taxable amount of your IRA and SS taxable distributions, upt to $3,000 per year until used up.

[marywatson51]

Yes, loss from sold securities.

[macuser_22]

You should receive a 1099-B  from your broker for the sales (usually in February).  When you enter that into TurboTax it will create a schedule D (capital gains and losses) that will calculate the deduction.  Be sure to enter your cost basis for the securities when the interview asks.  You can add any commissions paid to the cost basis (i.e. the higher the cost basis the greater the loss and the larger the deduction).