Writing off bankrupt account

[lisacatania]

My husband invested in a retirement account that went into bankruptcy.  It is still pending in bankruptcy, but once we know how much we lost (which will probably be close to 99% of the money we invested) can we write the loss off our taxes and under what in turbotax would we write it off on?  We assume we have to wait for the bankruptcy to be over and write it off in that year.

[RobertB4444]

If it was a traditional retirement account then none of the money that was deposited into it was taxed before it went in.  It was all tax free.  So, unfortunately, you can't take a tax deduction for losses within a tax free account.

If it was a ROTH retirement account and the money deposited was taxed prior to being deposited then the loss would be written off on schedule D as a sale of an investment sold for zero dollars and costing all of the deposits that your husband made into the account.

@lisacatania 

[lisacatania]

Thanks Robert for the reply.  So if we put in $10,000 and the company holding that money went bankrupt, then there is nothing we can do to write any of that off?  It was a traditional IRA so I understand that you are saying it was not taxed before but was hoping there was something that could be done to recoup some of the loss.  Any ideas?

[lisacatania]

Thanks Robert.  I appreciate your responding.  It was a traditional IRA so I understand that it was not taxed before so that makes sense but I was hoping there was something else we could do since it was a bankruptcy that we did not expect so was hoping there was some way to recoup part of the $10,000 with some sort of write off...any ideas of what we could do if anything?

[DianeW777]

As indicated by @RobertB4444, the tax law is established to tax any money earned.  In your case the funds that went into the traditional IRA were never taxed which is the reason you cannot offset other income for untaxed lost funds, even in bankruptcy.

If there was any nondeductible funds, only those could be used to offset income and that amount must be greater than $3,000.

@lisacatania 

[lisacatania]

Thanks to both you and Robert.  I appreciate the info.