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I took out some money from my IRA and invested it with a stock investor. Can I count any losses from that investment against the taxes due on the income withdrawal from my IRA? For example, if I took out $200,000 and have a loss of $100,000, will I only pay taxes on the $100,000 remaining? What documentation would I need. He is family, but not a business, he was just investing for us privately. Thanks for your help.
No - doesn't work that way. You owe ordinary income taxes on the amount of the IRA withdrawal attributable to pre-tax contributions and earnings. I assume you are over 59-1/2 and so don't owe an early withdrawal penalty as well, correct? Your IRA plan administrator will send you a 1099-R form in January that will show the $200K as a distribution to you - you report this on line 15 of Form 1040 as "Pensions and Annuities."
As for the $100K loss - you should receive a from 1099-B in January from whomever you invested with that documents the proceeds from the sale of the stock investments - this gets reported as a loss on Schedule D. However - when you say this person was investing for you "privately" - what does that mean? Did you write him a check which he used to buy and sell in his own acount? I certainly hope not - but post back and let us know. In any event, the 100K loss will be used to first offset any other capital gains you may have, and then any additional loss up to a max of $3K can be used to offset your ordinary income. Any loss in excess of $3K is carried into future years to act as an offset then. So if you have no other income, or gains or losses, you'll be reporting $200K in income less $3K in losses, for total txable income this year of $197K. See the following for more information on reporting capital gains:
Tax Topics - Topic 409 Capital Gains and Losses
I did write a check out to them. Will that cancel my opportunity to carry over the losses? And yes I am over 59 1/2.
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Originally Posted by ebaines
Did he give you a receipt and/or some form of account statement when you gave him the money up front? And is he going to send you a 1099-B form in January so you can document your loss?
Why did you have to withdraw the money from the IRA? You could have turned the IRA into a self-directed account and invested the money WITHIN the IRA protection. That was your first mistake.
Second mistake was just turning money over to this person. The money should have been kept in your own name. You could have given him power to trade using the account, but you don't just turn over the money to him.
Third, its not clear whether your loss is on paper or not. If he bought stock and didn't sell it, you may have a paper loss, but not a real one that can be claimed on taxes at this point.
But having just turned the money over to him, may mean that you have no record of your own losses. As far as the IRS is concerned, you withdrew money from your IRA and now have to pay taxes on that money as ebaines described. Unless the investing was done in your name and SSN, you have no proof of gains or losses. So you have nothing to offset the taxable income with.
One should NEVER invest with family.
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