Offsetting Stock Losses Against Inherited IRA Distribution (Taxable Income)

[Jon112]

Hi there, I have a stock that I sold for a $4,000 loss in 2023. I also plan on taking a distribution from an inherited IRA in 2023. My question is, how much can I withdrawal from my Inherited IRA before I have to pay income tax on the Inherited IRA distribution? Thanks

[VolvoGirl]

Probably only 3,000.  Did you have any investment or stock gains?  If you have a net loss for the year you can only deduct 3,000 (1,500 MFS) max on your tax return.  The rest you have to carryover to next year.  You have to report the carryover every year until it's used up.  You can't skip a year.  So you can use 3,000 of the loss on your return but you have to carryover 1,000 to the next year.  

See Publication 550.  Capital Losses start on page 66

https://www.irs.gov/pub/irs-pdf/p550.pdf

[Jon112]

Thanks! How much would I be able to withdrawal from the Inherited IRA that would NOT be taxable income (considering the $3,000 loss on the stock)?

[VolvoGirl]

Didn't I answer that?  3,000.  And how old are you?  Is it a Traditional IRA or a ROTH IRA?  I'll page @dmertz who knows more about IRA.

[VolvoGirl]

Oh and it depends on all your other income.  You can take up to your Standard Deduction amount before any income is taxable.

For 2023 the standard deduction amounts are:

Single 13,850 + 1,850 or 65 and over or blind

HOH 20,800 + 1,850 for 65 and over or blind

Joint 27,700+ 1,500 for each 65 and over or blind

Married filing Separate 13,850 + 1,500 for 65 and over or blind

[NCperson]

@Jon112 - too many 'nots' in your response.  All your income less the standard deduction is 'taxable income'. 

You have a $4,000 loss from the sale of stock that occured outside the IRA.  You can use up to $3,000 per year to offset ordinary income

how much is the rest of your income prior to any withdrawal from the IRA? then I can answer your question. 

Also, on the inherited IRA, are you obligated to required minimum distributions?  

you might want to just use this website to answer your own question.  You can play 'what ifs' that way. 

https://www.dinkytown.net/java/1040-tax-calculator.html

[Jon112]

Apologies, I am 38 & single. Again, thank you for your help. Taxes are not my forte, just want to make sure I understand. So, if I took the loss of $3,000 on the stock this year and withdrew $5,000 from the Inherited IRA ... $2,000 of the $5,000 withdrawal would be taxable income and $3,000 would not be taxable because it's offset by the loss on the stock?

[Jon112]

Other income is $71K & the minimum withdrawal is 100% over 10 years. However, the minimum for this year has already been met by the deceased.

[Jon112]

Thank you both for your help.

[dmertz]

As others have implied, it doesn't make sense to look at the distribution from the inherited IRA and the capital loss in isolation from the rest of your tax return.  Prepare a simulated tax return to see the effect of varying amounts of distributions from the inherited traditional IRA.

If you are a non-spouse beneficiary and the IRA participant died after their required beginning date for RMDs, you are required to take some minimum amount out of the IRA each year regardless of the tax consequences.

[NCperson]

<<Apologies, I am 38 & single. Again, thank you for your help. Taxes are not my forte, just want to make sure I understand. So, if I took the loss of $3,000 on the stock this year and withdrew $5,000 from the Inherited IRA ... $2,000 of the $5,000 withdrawal would be taxable income and $3,000 would not be taxable because it's offset by the loss on the stock?>>

that is correct.